Firms abandoning asset management businesses

Wall Street companies are ditching their asset management businesses in order to avoid conflicts of interest and distribution obstacles, according to analysts.

Financial firms are reacting to news that Merrill Lynch & Co is negotiating with BlackRock to swap its fund unit for a minority stake in the latter company.

Similarly, Legg Mason last year acquired Citigroup's Asset Management arm, thereby underlining the growing opinion amongst large firms that asset management has gotten increasingly risky as regulators hone in on brokers promoting and selling in-house mutual funds.

"They want to cut the ties between their brokerage and asset-management businesses to reduce conflicts of interest," Craig Woker, an analyst at the investment research firm Morningstar, told MarketWatch.

Sam Campbell, analyst at Financial Research Corp, added: "Anyone with both a fund unit and a brokerage arm is looking at sell options right now."

Regarding the BlackRock deal, he said: "BlackRock has been under pressure to diversify a bit because, as a fixed-income manager, it's dependent on interest rates to a degree. With this deal, they get some equity assets and some distribution."

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