Merrill Exploring Selling Stake in Investment Management Unit

June 3, 2004 ( - The New York Times is reporting Merrill Lynch has been exploring the possibility of selling a big stake in its investment management business to Legg Mason.

“Bankers who have been briefed on the discussions,” told the Times the Princeton, New Jersey-based Merrill and the Baltimore-based Legg Mason have had a number of talks in recent months about a deal that would bring $513 billion in asset under management under Legg Mason’s control.   Citing policies that prohibit them from addressing market rumors, both firms declined to comment to the Times.

If the reported amount were correct, the sale would represent a huge step in for Legg Mason, which currently manages $286 billion in assets.   The firm though has been aggressively seeking out new sources of assets, acquiring Rothschild’s Singapore asset management business in January (See  Legg Mason Acquires Rothschild’s Singapore Unit ).

Additionally, the market rumors mark another move in the philosophical shift for Merrill, which had previously prided itself on offering every financial service under the sun for its clients.   Under the tutelage of the firm’s current chairman E. Stanley O’Neal, Merrill has made a concerted effort to cut costs and maximize returns.

The sale of such a large portion of its investment management business would not be without precedent. In April, Morgan Stanley, which recently paid a $50 million fine to settle charges of improper mutual fund sales practices (See  Morgan Stanley Confirms Spitzer, SEC Fund Probe Ties ),closed 13 proprietary funds in April as part of its effort to increase the sales of its Van Kampen funds through outside financial advisers.