Citigroup, Morgan Stanley eye brokerage venture

NEW YORK, Jan 9 (Reuters) - Citigroup Inc (C.N) is in advanced talks to sell its Smith Barney retail brokerage business to Morgan Stanley (MS.N) over time, a person familiar with the matter said on Friday.

Under the deal being discussed, the two companies would set up a joint venture, with Citigroup initially owning 49 percent of the combined retail brokerage business, and Morgan Stanley owning the rest, the person said on condition of anonymity.

Over the next three to five years, Morgan Stanley would have the option and would plan to buy Citigroup's stake in the venture.

Morgan Stanley would make an upfront payment to Citigroup, and would likely make additional payments over time as it bought more of the business.

The deal would allow Morgan Stanley to further diversify its earnings stream.

Citigroup could boost its capital levels while still getting income from the business over the next few years. The combined business would likely have lower costs than they have separately, the person said. (Reporting by Dan Wilchins)