Citigroup, Morgan Partner on Smith Barney

Updated from 5:15 p.m. EST

Citigroup (C Quote) and Morgan Stanley (MS Quote) on Thursday said they would combine brokerage operations in a new joint venture to be called Morgan Stanley Smith Barney.

The announcement culminates three days of speculation about a deal, which creates the world's largest brokerage operation, with 20,000 advisers managing $1.7 trillion in client assets for 6.8 million households. Morgan Stanley will pay $2.7 billion for a 51% stake in the combined business, allowing it better to compete with a newly merged Bank of America (BAC Quote) and Merrill Lynch.

"This joint venture is an important step forward in our effort to build our wealth management franchise, which we believe will be an increasingly important and profitable part of Morgan Stanley's business in the years ahead," Morgan Stanley Chairman and CEO John Mack said in a statement. ...