Citi did not offer brokerage to JPMorgan: sources

NEW YORK (Reuters) - JPMorgan Chase & Co never had a chance to bid for Citigroup Inc's Smith Barney business, two people familiar with the matter said, but it may still build a retail brokerage business by acquiring smaller companies, analysts said.

Citigroup and Morgan Stanley are combining their retail brokerages into a joint venture controlled by Morgan Stanley, sources said.

That deal, expected to be announced this week, may be a setback for JPMorgan Chief Executive Jamie Dimon, who has said frequently that he would like to acquire a retail brokerage.

Citigroup never spoke to JPMorgan about buying Smith Barney because it would not have been a good match, a person familiar with the matter said.

Citigroup was looking for a joint-venture partner that it could merge its business with. It was hoping its joint venture partner could buy Citigroup's stake over a period of years, so that it would not have to sell the entire business in a depressed market.

JPMorgan, which has just a small brokerage from its May 2008 acquisition of Bear Stearns Cos, did not meet these requirements, the person said.

JPMorgan and Citigroup declined to comment.

There is increasing interest among banks to boost assets under management in their brokerage businesses to diversify their sources of revenue. Many analysts believe JPMorgan does not need to increase brokerage business if it does not want to.

"Can JPMorgan succeed without a retail brokerage operation? Absolutely," said Brad Hintz, analyst at Sanford C. Bernstein & Co in New York.

But even if the bank does not absolutely need a retail brokerage business, it may still choose to buy one, Hintz said. "Dimon would be very comfortable with that, it would be one of his favorite businesses to play in," he added.

There are not many large brokerages for JPMorgan to buy, after Bank of America Corp and Wells Fargo & Co snapped up Merrill Lynch & Co and Wachovia Corp respectively.

But the bank could buy smaller, regional brokerages, and JPMorgan's recent acquisitions could provide a good foundation, analysts said.

"Certainly, Bear Stearns and JPMorgan Securities gives JPMorgan the infrastructure to build a retail brokerage firm from smaller pieces," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

Two years ago in a speech to the CFA Society of Chicago, Dimon said he would love to have a retail brokerage, but that its absence is "not going to cripple" JPMorgan. "We can build a great bank without it," he said.

At the end of the third quarter, JPMorgan had 323 brokers from Bear Stearns, and the Bear brokerage contributed $131 million to revenue, according to a filing with the Securities and Exchange Commission in November.

(Additional reporting by Dan Wilchins; Editing by Tim Dobbyn)