US banking major Citigroup Inc is in advanced talks to sell its retail brokerage business Smith Barney to Morgan Stanley as the two combines their wealth management business over time.

A deal between the embattled banking groups would help bolster Citi with much-needed cash while giving a boost to Morgan Stanley's brokerage business, sources close to the development said.

Under the proposed deal, the two companies would set up a joint venture retail brokerage business, with Citigroup initially owning 49 per cent and Morgan Stanley owning the rest of the combined business, reports quoting sources said.

Morgan Stanley will make an upfront payment to Citigroup, and may make additional payments over the next three to five years as it buys more of  Citigroup's stake in the venture.

The merger proposal comes close on the heels of reports that Robert Rubin, a senior advisor to Citi,has announced his decision to quit the bank.

Rubin, 70, a former secretary of the US Treasury, has been criticised for failure to prevent the banks' problems. He will however, continue on the board of Citi till his term expires.

Shareholders too had earlier demanded a break-up of Citigroup saying it had become too huge and unwieldy.

New York-based Citi, hit hard by last year's credit market Tsunami and the financial sector melt-down, had last signed agreements to borrow around $45 billion from the US government's bail-out fund.

In addition, Citi has received a government guarantee for up to $306 billion in loans and securities backed by mortgages.

Hit by the mortgage market crisis, Citigroup also reported four straight quarters of losses, and is expected to post yet another loss when it releases fourth-quarter results later this month.