The banks said in a statement Tuesday that no definitive agreement has been reached. It also says "no assurance can be given that any such agreement will be reached."
A person close to the negotiations has said Citigroup plans to sell a 51 percent stake in Smith Barney, its retail brokerage, to Morgan Stanley for about $2 billion to $3 billion in cash. The person spoke on condition of anonymity because he was not authorized to discuss the ongoing talks.
Citigroup shares are down 45 cents, or 8 percent, to $5.15 in early trading.