Morgan Stanley is in talks to take over Citigroup's Smith Barney brokerage division, according to a person familiar with the situation, a sister publication, On Wall Street, reported Friday.

Morgan Stanley intends to initially buy a 51% stake in Smith Barney and increase that stake in years to come, according to the source. Morgan will eventually obtain full ownership of Smith Barney. A retention package for brokers is almost certain to be modeled after the deal offered by Bank of America to Merrill Lynch's brokerage force in that takeover.

The proposed merger would create the world's largest advisory force with over 23,000 brokers. The move would comes amid turbulent global markets and a recession that has changed the face of Wall Street's largest brokerage firms, with many top managers leaving their longtime employers.

Citing other sources Dow Jones said Citi directors and executives, who are trying to stabilize the New York company, have not ruled out additional changes to its structure or operations. Another asset that could be up for grabs is Grupo Financiero Banamex SA, Citi's Mexican retail banking operation, which pumps out big profits for the parent.

Potential suitors could include JPMorgan Chase & Co., which likely would covet Banamex because it does not have any international retail operations, Dow Jones said.

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