June 16 (Reuters) - Legg Mason Inc (LM.N) could lose $25 billion to $30 billion of sweep funds that it managed for Citigroup (C.N) if Morgan Stanley (MS.N) -- Citigroup's new joint venture partner -- decides to manage the funds by itself, an analyst at FBR Capital Markets said.
Earlier this month, Morgan Stanley and Citigroup said they had started a retail brokerage joint venture, which allows Citigroup to boost its capital levels by selling a controlling stake in its Smith Barney retail brokerage business. [ID:nN01484340]
"Given that Morgan Stanley already internally manages its cash sweep program, we believe that the potential revenue synergies inherent in this (Citigroup's) sweep program will likely cause the broker to bring the business in house," analyst Matt Snowling said in a note to clients.
Noting that the Smith Barney product is managed by Legg Mason, the analyst said the loss of this business could cost Legg Mason about 10 cents-a-share in earnings.
"Mitigating the impact somewhat is the timing of any changes, which would not likely occur until 2010, given the time line for integrating the account technology of the two firms," Snowling wrote.
So, Legg Mason has an opportunity to deepen its distribution of long-term fund products via the legacy Morgan Stanley platform, the analyst added.
However, the company must first stabilize and demonstrate long-term fund performance before the opportunity can be realized, he said.
Legg Mason shares fell about 13 cents to $24.80 before the bell. They closed at $24.93 Monday on the New York Stock Exchange.
For related alerts, double-click [ID:nWNAB0092] (Reporting by Anurag Kotoky in Bangalore; Editing by Himani Sarkar)