New York based global banking and insurance giant Citigroup has sold the majority of its asset management business to US-based asset manager Legg Mason for approximately US$3.7 billion with a definitive arrangement being signed between the groups on Friday.
In the wake of the deal, the impact on local operations remains to be announced but a spokesman from Citigroup in Australia said operations would not shut down with business continuing as usual for now. He expected more information on the sale’s impact on the Australian business in the next couple of days.
Morningstar’s head of consulting, Anthony Serhan said he expected the Citigroup brand would change following the sale.
He added that the sale would not necessarily be a bad thing for Citgroup’s funds management operations in Australia.
“It may be the money managers quite appreciate being part of a name that does money management, with respected money management capabilities,” he said.
The deal, which is expected to bring Citigroup an after-tax gain of approximately US$1.6 billion, involves the exchange of Citigroup asset management for Legg Mason’s broker-dealer business, approximately US$1.5 billion of Legg Mason shares, and a five-year loan facility provided by Citigroup Corporate and Investment Banking of approximately US$550 million.
The transaction excludes Citigroup’s asset management business in Mexico, its retirement services business in Latin America or its interest in the CitiStreet joint venture.
Citigroup president and chief operating officer, Robert Willumstad said the sale followed a decision from the company to focus on expanding access to best-in-class investment products, rather than manufacturing proprietary asset management products.
Serhan said it was not uncommon for large organisations to re-focus on core activities and sell off parts of their organisations.
“It’s a problem with a lot of the large merchant bank type organisations like Morgan Stanley or Goldman Sachs, when it comes to the capabilities that they do have in the context of the bigger empire, they’re significantly small in terms of contributions to profitable arrangements,” he said.
The transaction is expected to close during the fourth quarter subject to regulatory approvals and customary closing conditions. Citigroup is also seeking approval of Asset Management’s mutual fund boards and shareholders.
