Citi's Getting Smaller, But That's a Good Thing

CNBC was reporting on Monday that Citi is considering all options -- including those other than a deal with Morgan -- and if it goes through, the deal will be announced either Tuesday or Wednesday.

The move is yet another step in which CEO Vikram Pandit's hands have been tied by the tough banking environment and the precarious position Citi finds itself in, where it may have to part with generally profitable businesses such as Smith Barney. Pandit has in the past expressed resistance to unloading the unit.

The company has raised some $45 billion through the $700 billion Troubled Asset Relief Program, or TARP, that Congress passed in October and the government agreed to backstop some $300 billion in risky assets. It has also had to back out of several potential deals for retail deposit-taking banks, including Wachovia, which was acquired by Wells Fargo and a smaller regional bank, Chevy Chase, which will be sold to Capital One Financial (COF Quote) .

Over the past 18 months, Citi has been struggling to navigate the souring credit cycle, with not much luck. The company has taken roughly $50 billion in writedowns, with some suggesting that the firm will take another $9 billion for the fourth quarter, according to Oppenheimer's Meredith Whitney. Ever-increasing credit costs on defaulted mortgages, increasingly so in credit cards and now some commercial loans, also weigh on the bank's balance sheet.

In the past week alone, the company announced a host of bad news, including suddenly supporting bankruptcy reform to allow the courts to modify mortgage loans on bankrupt borrowers in foreclosure. The bank also announced that it would add $1.4 billion to its loan loss provision for its exposure to LyondellBasell, whose U.S. units filed for bankruptcy last week. Late Friday, senior advisor Robert Rubin resigned from his role and said he would not seek re-election for seat on the board of directors.