GLOBAL – Citigroup has confirmed it is exiting the asset management business in a $3.7bn (€3.1bn) deal with Legg Mason.

It said it has a definitive agreement to sell most of its asset management business to the Baltimore-based firm in exchange for Legg Mason’s brokerage business. News of the deal leaked out earlier this week.

The New York-based bank said the deal would mean an after-tax gain of around $1.6bn.

"We have been assessing our options for the asset management business and have found, in Legg Mason, a partner with an excellent product set that both complements and enhances our existing product offering to our customers," said Citigroup chief executive Charles Prince.

The two firms have a three-year distribution agreement under which Citigroup will continue to offer clients asset management products.

"After careful review, we determined that our emphasis should continue to be on expanding access to best-in-class investment products, rather than on manufacturing proprietary asset management products," added bank president Robert Willumstad, He said the business would have “increased opportunities to grow” under its new owner.

The transaction is expected to close during the fourth quarter subject to regulatory approval.

Legg Mason – which is also buying hedge fund group Permal - said the deal includes $437bn in assets under management. The two transactions would make it into a “pure play” global asset manager of equities and fixed income.

The deals will see Legg Mason’s total assets under management rise to more than $830bn, it said.

Legg Mason CEO Chip Mason hailed the strategic fit between Citigroup’s fixed income business and its own Western Asset unit.