Davis Polk & Wardwell further cemented its budding relationship with Citigroup Inc. this month. The law firm is advising the embattled commercial bank as it hives off its non-banking businesses and simplifies its operations.

Davis Polk's team of George Bason, John Bick, Carole Schiffman, Randall Guynn, Avishai Shachar and Neil Barr worked with Citi's management to spin off the bank's Smith Barney brokerage unit in a joint venture with Morgan Stanley. Davis' lawyers were also by Citi's side in the management deliberations that led to the bank's announcement on Jan. 16 that it would separate its core banking businesses from its noncore asset management, insurance and consumer finance businesses.

For Citi, the Davis Polk relationship is relatively new, replacing one held by Skadden, Arps, Slate, Meagher & Flom LLP. That relationship stretched back to the Sandy Weill era, and Skadden partner Kenneth Bialkin, who sat on Citi's board for many years, maintained it. But Vikram Pandit's rise to Citi CEO brought a change in preferred advisers, as Pandit turned to the law firm he had known at Morgan Stanley, and then at his as now-defunct hedge fund, Old Lane Partners LP. Indeed, Davis Polk advised Old Lane when Citi bought it in April 2007, in the deal that brought Pandit to the bank.

After Pandit arrived, Davis Polk advised Citi on its failed bid to buy Wachovia Corp. last year, and the law firm was at the bank's side when the Federal government bailed it out through a $20 billion emergency capital infusion in November. Further strengthening the Davis Polk tie was Edward "Ned" Kelly's decision in January 2008 to leave Carlyle Group to join Citi as head of the bank's alternative assets division. A former Davis Polk partner, Kelly, who ran a financial institutions-focused fund for Carlyle, had previously headed the global financial institutions group at J.P. Morgan Chase & Co.

Sources say the joint venture discussions with Morgan Stanley, which will result in the creation of Morgan Stanley Smith Barney, the largest brokerage in the world, were assembled in a month. The extremely complex arrangement, however, has yet to be finalized, and terms must be hammered out over nine months.

"Mergers are hard to do quickly," a source says about the month that it took to bring Morgan Stanley and Citi to terms. "But they're not quite the 3-D chess game that JVs are."

Cravath, Swaine & Moore LLP partner Robert Joffe advised Citi's board of directors on the JV. Morgan Stanley turned to the Wachtell, Lipton, Rosen & Katz team of Edward Herlihy, Steven Rosenblum, Stephanie Seligman, David Silk, Richard Kim, Mark Gordon, Matthew Guest, Jodi Schwartz and T. Eiko Stange.

The two banks used their own deal teams for investment advice, with Citi using Ned Kelly, Gary Shedlin, Jane Fraser and Vince Fandozzi. Morgan Stanley used its FIG bankers, Robert Kindler and Erica Fenlon.