Word of a $3-billion deal expected within a few days, according to reports. The news wires are abuzz with talk of a Morgan Stanley takeover of Citigroup's Smith Barney. The combination would create the world's biggest retail brokerage, easily surpassing the 19,000-broker force at Bank of America's command since it completed its acquisition of Merrill Lynch a week and a half ago with about 22,000 reps -- assuming that many of its brokers stick around to see the deal done.

Citing "people with knowledge" of ongoing talks between Citi and Morgan Stanley, media reports have Morgan Stanley on the verge of acquiring a narrow majority of Smith Barney for between $2.5 billion and $3 billion, giving Citi the ability to book a gain in tangible equity of between $5 billion and $6 billion as a result of being a part owner of venture that's bigger than Smith Barney was on its own.

Mid week

Citi and Morgan Stanley aren't commenting on the rumors.

The immediate impetus for the deal is supposedly Citigroup's need for cash. The New York-based bank reported more than $20 billion in losses through the past four quarters. It took $45 billion in U.S.-government bailout funds in the last quarter of 2008. A few months ago, Citi's CEO Vikram Pandit was saying Smith Barney -- a comparatively stable source of revenue -- wasn't on the auction block and wouldn't be put there.

From Morgan Stanley's perspective, a tie-in with Smith Barney stands to make its brokerage a more formidable competitor to Bank of America's newly enlarged private-client business. Access to Smith Barney's clients is also supposed to give it a shot at attracting customers to its newly-chartered retail-banking business.

Morgan Stanley retail-brokerage boss James Gorman is figured to lead the combined unit -- which would have more than $14 billion in annual revenue, according to 2008 figures. Morgan Stanley's institutional securities division generated $16.6 billion in sales last year.

Scuttlebutt has official word of a deal between Citi and Morgan Stanley coming on Tuesday or Wednesday this week. -FWR

Purchase reproduction rights to this article.