Citigroup May Swap Assets With Legg

Citigroup Inc., the world’s biggest bank, may do an asset swap with financial services firm Legg Mason Inc. that would get the former out of the mutual fund business and the latter out of the brokerage business.

Citigroup may swap its $460-billion asset management business for Legg Mason’s 1,540 brokers, people familiar with the discussions said Thursday.

Citigroup also is considering selling the fund management unit to Legg Mason or buying the Baltimore-based financial firm’s brokerage unit outright, said the people, who spoke on condition of anonymity.

A transaction could mark Citigroup’s further withdrawal from the financial services “supermarket” concept former Chairman Sanford Weill envisioned when he merged Travelers Group Inc. with Citicorp in 1998.

For Legg Mason, home of famed stock picker Bill Miller, a deal for Citigroup’s fund unit would more than double its assets in that business, currently $373 billion.

Citigroup spokeswoman Leah Johnson and Legg Mason spokesman Jeffrey Bukowski declined to comment. The talks between the two companies were earlier reported by the Wall Street Journal.

Shares of Citigroup slipped 1 cent to $47.71 on Thursday; Legg Mason jumped $2.63 to $86.92.

Citigroup Chief Executive Charles Prince has been shedding businesses to focus on lifting profit margins. The company agreed in January to sell Travelers Life & Annuity, an insurance underwriter, to MetLife Inc.

Citigroup’s Smith Barney brokerage unit earned $195 million in the first quarter, returning a handsome 64% on its invested capital. The business has more than 12,000 financial advisors and 522 branch offices.

Raymond “Chip” Mason, Legg Mason’s chief executive, has built his money management business through a string of acquisitions. Among other units, the firm owns Pasadena-based fixed-income manager Western Asset Management.

A swap between Citigroup and Legg Mason could eliminate potential conflicts of interest for both companies: Smith Barney brokers would no longer have to be concerned with selling in-house funds; Legg Mason could concentrate primarily on the fund business.