It expects the joint venture to result in a 5

government could consider buying troubled assets, providing asset guarantees or setting up a so-called bad bank to buy assets from banks in exchange for cash and equity.Citigroup received $25 billion from the government last October and another $20 billion of capital in November as part of a rescue package.The joint venture with Morgan Stanley will create the largest U.S. The number of brokers will surpass that of Bank of America Corp, which bought former No. Citigroup has been awarded $45 billion, and Morgan Stanley $10 billion.CITIGROUP MODEL "DIDN'T WORK"Weill created Citigroup in 1998 when his Travelers Group Inc bought Citicorp, hoping to create a one-stop banking shop for consumers and businesses.But he never invested enough in the infrastructure and the technology to make the far-flung empire, now operating in more than 100 countries, work well."Citigroup's model was let's get bigger, and that will make us better," said Robert Millen, who helps invest $2.5 billion at Jensen Investment Management in Portland, Oregon and does not own the bank's shares. "It didn't work that way."After Weill's handpicked successor Charles Prince took over, the bank burrowed deeply into mortgage securities and other complex debt, leaving it exposed to massive credit losses and writedowns as the financial crisis spread around the world.Now the nation's third-largest bank by assets, after Bank of America and JPMorgan Chase & Co, Citigroup lost $20.3 billion in the year ended September 30, and is expected to have lost several billion dollars in the fourth quarter, ended December 31.It expects the joint venture to result in a $5.8 billion after-tax gain, and to add $6.5 billion of tangible common equity.The combined brokerage will include Morgan Stanley's wealth management business, and Citigroup's Smith Barney, Smith Barney Australia and its British unit Quilter.

It will not include Citi Private Bank or Nikko Cordial Securities.Morgan Stanley may boost its stake in the venture to 65 percent after three years, 80 percent after four years, and 100 percent after five years.The banks expect $1.1 billion in cost savings, or 15 percent of combined expenses, excluding broker commissions.In after-hours trading, Citigroup shares fell 5 cents to $5.85, after closing up 30 cents to $5.90 in regular trading. Morgan Stanley shares fell 16 cents after hours to $18.70 after rising 7 cents to $18.86 in regular trading.Morgan Stanley is diversifying, less than four months after adopting a bank holding company structure to help ensure its survival, something that smaller rivals Bear Stearns and Lehman Brothers Holdings Inc failed to do.KEEPING BROKERSBrokerage combinations often result in attrition, and the joint venture will need to focus on retaining brokers, according to Paul Tramontano, CEO of Constellation Wealth Advisors and a Smith Barney broker for 17 years.He said five Smith Barney brokers called him on Tuesday afternoon for guidance about their futures."At a big firm, the temptation is to stuff products into your sales channel, which are not always the best products for clients," Tramontano said. That bank was not immediately available for comment.The transaction is expected to close in the third quarter, pending regulatory approval and other conditions. A board of directors will include representatives from both companies.The law firm Wachtell Lipton Rosen & Katz advised Morgan Stanley, and the law firm Davis Polk & Wardwell advised Citigroup.

The law firm Cravath, Swaine & Moore LLP said it advised Citigroup's independent directors.(Reporting by Joseph A. Giannone and Dan Wilchins; additional reporting by Paritosh Bansal, Jonathan Spicer; editing by Jeffrey Benkoe and Toni Reinhold). WASHINGTON (Reuters) - The U.S. House of Representatives voted on Wednesday to expand a children's health program and raise cigarette taxes to pay for it, giving President-elect Barack Obama a jump-start on a campaign promise to insure more Americans. U.S. Barack Obama HealthSimilar legislation was twice vetoed by President George W.

The Senate Finance Committee is scheduled to discuss the legislation on Thursday.Obama, who takes office on Tuesday, said in a statement the U.S. economic downturn made expanding the children's health care program more urgent."This coverage is critical, it is fully paid for, and I hope that the Senate acts with the same sense of urgency so that it can be one of the first measures I sign into law when I am president," Obama said.The bill passed by the House aims to increase the number of children enrolled in the program to about 11 million from 6.7 million. The expanded program is paid for in part by raising the cigarette tax to $1 a pack from 39 cents. Taxes on cigars and other tobacco products also would rise.The program is designed to provide health care to children in families who are unable to afford health insurance but earn too much to qualify for the Medicaid health care program for the poor."This bill is a down payment, a down payment on health care for all Americans," said Rep. Henry Waxman, a California Democrat who as head of the House Energy and Commerce Committee will play a crucial role in helping craft Obama's planned overhaul of the $2.3 trillion U.S.