Rubin Exits Citi, as Bank Talks to Morgan

The company announced late Thursday that its direct exposure to troubled chemical maker LyondellBasell was approximately $2 billion. The Netherlands-based company filed for Chapter 11 bankruptcy earlier this week. Citi said it would take a charge of around $1.4 billion recorded as a loan loss provision.

Schutz says that a joint venture of Morgan's and Citi's brokerages would "make a ton of sense."

Companies are in "cost-cutting mode," he says. This is not "a revenue story, it's a cost-cutting one," and both companies would benefit, while Citi would get to retain the value of its Smith Barney unit.

He likened the deal to Wachovia's joint venture with Prudential Securities. Wachovia was recently acquired by Wells Fargo (WFC Quote).

Citi shares closed down 5.7% to $6.75 Friday.