Break-up of Citigroup moves a step closer

London/New York: The break-up of US banking powerhouse Citigroup moved a step closer, and Britain took control of a big stake in another top lender on Monday as the reshaping of the global financial landscape gathered pace.

Citigroup moved close to a deal to join its Smith Barney business with Morgan Stanley's brokerage operation, people familiar with the matter said.

The move would create the largest retail brokerage and mark the boldest step in dismantling what was the world's biggest financial services conglomerate.

The financial services sector is in a state of constant flux as banks recoil under the threat of a long and deep downturn, with governments bailing out the worst-hit lenders while relatively strong banks look for bargain acquisitions.

Britain found itself with another stake in a top bank after investors in Lloyds TSB and its takeover target HBOS shunned a pair of rights issues, leaving the government to supply almost all of the £17 billion (Dh92.85 billion) they need to rebuild capital.

"The landscape is going to change, and it's unlikely that large banks can go into government hands and come out the other side unchanged," said Simon Maughan, analyst at MF Global in London.

"Whether it's the US government with Citi, the Swiss with UBS or the UK with Royal Bank of Scotland, governments are going to say, 'You are very big institutions to be bailed out, and it would be good if you were a degree smaller and much more manageable'," he added.

Britain will get a 43.4 per cent stake in Lloyds Banking Group, the enlarged bank to be formed this week, adding to the 58 per cent holding it took in RBS last month.

The US and Britain are not alone in taking potentially long-term stakes in lenders as part of moves to shore up the troubled sector.

Greece's third-largest lender, Alpha Bank, yesterday won approval to raise up to 950 million euros (Dh4,678.48 million) by selling preference shares to the government as part of a 28 billion euro state-backed support package.

Germany last week pumped 10 billion euros into Commerzbank, and though the bank's CEO Martin Blessing said over the weekend he aimed to repay the capital as soon as possible, he expected Berlin would keep its holding for some years.

Other deals are also simmering, with South African billionaire Johann Rupert's investment vehicle in talks about buying out Lehman Brothers' merchant banking business.