Citigroup and Legg Mason in $3.7B Swap

In a deal motivated in part by stricter regulation, Citigroup announced Friday that it will swap its asset management business for the broker/dealer business of Baltimore-based Legg Mason. Citi will get $1.5 billion in common and preferred Legg Mason shares as part of the $3.7 billion deal, which lets the company ditch the less-profitable business of creating its own asset management products, while avoiding the conflict of interest of having its sales force promote both in-house and external funds. Under a separate arrangement, Citi will continue to be able to offer its clients its asset management products. Legg Mason will gain approximately $437 billion of assets under management. The deal, which had been under discussion for some time, is expected to close toward the end of the year. Separately, Legg Mason announced that it was paying $800 million for 80 percent of hedge fund company Permal Group, with an option to buy the rest. Permal is one of the largest fund-of-funds operators in the industry, with around $20 billion under management.