Citigroup, Legg Mason in $3.7B Asset Swap

June 24, 2005 ( - As part of a $3.7-billion asset swap deal announced Friday, Citigroup has agreed to acquire Legg Mason's brokerage network in exchange for most of Citigroup's asset management business.

In its part of the deal, Legg Mason’s acquisition of Citigroup’s worldwide asset management business also includes $437 billion of assets under management, according to  Citigroup and  Legg Mason . That is in exchange for:

  • Legg Mason’s private client brokerage and capital markets businesses
  • $1.5 billion of Legg Mason common and nonvoting convertible preferred shares
  • $550 million in the form of a five-year loan facility provided by Citigroup’s corporate and investment bank.

Left out of the deal were Citigroup’s Latin American retirement services operations, its Mexican asset management business and its interest in the CitiStreet joint venture, the companies said. The companies also hammered out a three-year global pact calling for Citigroup to continue to offer its clients asset-management products and take on Legg Mason Wood Walker’s role as primary domestic provider for Legg Mason’s equity funds.

A Wall Street Journal report said the deal represents for Citigroup a continued process of shedding slow-growing business lines, while trying to minimize potential conflicts of interest from having its brokers also pushing its in-house financial products. Citigroup is the world’s largest financial-services firm.

The Journal also noted that Friday’s deal cements the transition of the Baltimore-based Legg Mason from a small regional brokerage firm into a money-management giant, making it the world’s fifth-largest. In the past 10 years, Legg Mason’s assets under management have grown to $373 billion as of the end of March from $25 billion, driven by a series of acquisitions and its popular fund manager, William Miller, the Journal reported.

For Citigroup, the asset swap with Legg Mason will set the stage for the banking giant to focus its brokerage operations on offering “independent financial advice” to clients, according to a person familiar with Citigroup’s plans, quoted by the Journal. The asset-swap will enable both companies to separate the “production” of financial products from their “distribution,” according to the report.  

Hedge Fund of Funds

Also announced Friday as part of a separate deal, Legg Mason said it has agreed to acquire the  Permal Group , one of the five largest funds-of-hedge-funds managers in the world, with $20 billion of assets under management, from Sequana Capital and Permal Group’s management. Virtually all of these assets are managed on behalf of high net worth investors domiciled outside the US.

Under the Permal transaction, Legg Mason will acquire an 80% interest in Permal at closing with the right to purchase the remaining 20% over the next four years. Permal’s entire senior management team is expected to continue at the company under long-term employment agreements.