Citibank (NYSE: C) Plans to Sell Remaining Smith Barney Stake to Morgan Stanley

Citibank/Citigroup (NYSE: C) CEO, Vikram Pandit, says that Citi will eventually sell its remaining stake in its Smith Barney brokerage venture to Morgan Stanley (NYSE: MS), which currently owns the other half.

Smith Barney is a division of Citigroup Capital Markets Inc and is currently one of the United States’ largest retail brokerage firms. Smith Barney became part of the Citigroup family when Citicorp merged with Travelers inc, which had owned Smith Barney, to create Citigroup in 1998.

In January of 2009, Morgan Stanley and Citigroup announced that Smith Barney would merge with Morgan Stanley’s Global Wealth Management Group. In that deal, Morgan Stanley paid $2.7 billion for a 51 percent stake in the joint venture.

The combined entity, Morgan Stanley Smith Barney, now services about 6.8 million households, has 18,500 financial advisors, and about $14 billion in net revenue. With over 18,500 financial advisors, Morgan Stanley Smith Barney is now one of the largest wealth management and brokerage firms in the United States.

Most analysts expected that Citi would eventually sell its remaining stake in Smith Barney to Morgan Stanley, but Pandit’s comments this week are the first time that Citigroup has publically discussed its plans to divest itself from Smith Barney.

Citigroup was one of the hardest-hit banks during the financial crisis last fall and has been selling significant assets in order to generate new capital to remain financially solvent. The move to divest itself from Smith Barney will provide Citi a shot of capital in the arm and allow Citigroup to continue to focus on traditional retail banking.