OFFICIAL SEAL OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

OFFICIAL LETTERHEAD STATIONARY FOR ROBERT DEV. FRIERSON, DEPUTY SECRETARY OF THE BOARD 

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

WASHINGTON, D.C. 20551 

May 1, 2006 

Christina Gattuso, Esq. 

Muldoon Murphy & Aguggia LLP 

5101 Wisconsin Avenue, NW 

Washington, DC 20016 

Dear Ms. Gattuso: 

This is in response to the request by Legg Mason Trust Company, National 

Association (“LMT”), Baltimore, Maryland, for an exemption from section 23A of the 

Federal Reserve Act and the Board’s Regulation W to permit LMT to acquire certain 

assets and assume certain liabilities from its parent, Legg Mason, Inc. (“LMI”), 

Baltimore, Maryland, as part of a corporate reorganization. [Footnote 1. Begin 

Footnote 1 text. 12 U.S.C. section 371c and 12 CFR part 223. End Footnote 1.] 

LMI plans to reorganize its asset management business by transferring to LMT all 

the outstanding shares of Legg Mason Investment Counsel (“LMIC”), Baltimore, 

Maryland, a wholly owned subsidiary of LMI and an affiliate of LMT for purposes 

of section 23A and Regulation W. [Footnote 2. Begin Footnote 2 text. Before LMIC 

is transferred to LMT, another wholly owned subsidiary of LMI, Legg Mason Focus 

Capital, Inc., will be merged with and into LMIC. End Footnote 2.] 

Section 23A and Regulation W limit the amount of “covered transactions,” 

which include loans and purchases of assets, between a bank (and its subsidiaries) and 

any single affiliate to 10 percent of the bank’s capital stock and surplus and limit the 

aggregate amount of covered transactions between a member bank and all its affiliates to 

20 percent of the bank’s capital stock and surplus. Covered transactions include a bank’s 

loans to an affiliate, investments in securities issued by an affiliate, purchases of assets 

from an affiliate, and certain other transactions. In addition, the statute and rule prohibit 

a bank from purchasing low-quality assets from an affiliate and require that all the bank’s 

covered transactions be on terms and conditions that are consistent with safe and sound 

banking practices. 

Regulation W provides that a bank’s acquisition of a security issued by a 

company that was an affiliate of the bank before the acquisition is treated as a purchase of 

assets by the bank from an affiliate if (i) the company becomes an operating subsidiary of 

the member bank as a result of the transaction; and (ii) the company has liabilities at the 
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time of the acquisition. [Footnote 3. Begin Footnote 3 text. 12 CFR 223.31(a). 

End Footnote 3.] LMIC is an affiliate of LMT and will becom

subsidiary of LMT in the proposed reorganization, and LMIC has liabilities. 

Accordingly, the acquisition of LMIC by LMT would be treated as an asset 

purchase subject to the quantitative and qualitative limitation

and Regulation W. For purposes of Regulation W, the value 

transaction would be approximately $[ ], which would be LM

at the time of the reorganization. [Footnote 4. Begin Footnote 4 text. See 

12 CFR 223.31(b). End Footnote 4.] 

To accomplish the reorganization, LMT has requested an exemption from 

section 23A and Regulation W to permit LMT to acquire all the shares of LMIC. 

Section 23A specifically authorizes the Board to exempt from the requirements of the 

statute, at its discretion, transactions or relationships if the Board finds such exemptions 

to be in the public interest and consistent with the purposes of the statute. [Footnote 5. 

Begin Foonote 5 text. 12 U.S.C. section 371c(f)(2). End Footnote 5.] The Board 

has approved exemptions in similar proposals for one-time transfers that were part 

of corporate reorganizations and that were structured to ensure the quality of the 

transferred assets. [Footnote 6. Begin Footnote 6 text. See e.g., Board letters 

dated November 22, 2005, to Robin Maxwell, Esq. (Royal Bank of Scotland 

Group plc); April 1, 2005, to Karen Grandstrand, Esq. (Klein Financial 

Inc.); and May 14, 2004, to James E. Scott, Esq. (Citigroup Inc). End Footnote 6.] 

As in previous cases reviewed by the Board, the proposed transaction in this case is 

the result of a one-time corporate reorganization. According to LMT, this exemption 

would enable LMT to expand the products it can offer to its clients and leverage its 

resources to provide better products and greater competition in the market. 

A majority of LMT’s directors have reviewed and approved the proposed 

restructuring. Moreover, you have represented that LMIC will not have any low-quality 

assets at the time the transaction is consummated and that LMT will not purchase any 

low-quality assets as part of this proposal. In addition, LMI has committed, as part of the 

exemption request, to make quarterly cash contributions to LMT for a two-year period 

following the reorganization equal to the book value plus any write-downs taken by LMT 

of any of LMIC’s transferred assets that become low-quality assets during the quarter. 

In light of these considerations and all the facts presented, the transaction 

appears to be consistent with safe and sound banking practices and on terms that would 

ensure the quality of the assets transferred. Accordingly, the transaction appears to be 

consistent with the purposes of section 23A, and the Director of the Division of Banking 
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Supervision and Regulation, pursuant to authority delegated by the Board, and with the 

concurrence of the General Counsel, hereby grants the requested exemption. 

This determination is specifically conditioned on compliance by LMI and 

LMT with all the commitments and representations made in connection with the request. 

These commitments and representations are deemed to be conditions imposed in writing 

in connection with this action and, as such, may be enforced in proceedings under 

applicable law. This determination is based on the specific circumstances surrounding 

the proposed transaction and may be revoked in the event of any material change in those 

circumstances or any failure by LMI or its subsidiaries to observe their commitments. 

Granting this exemption does not constitute a determination on the permissibility of any 

other transactions that are subject to section 23A or concerning any other affiliate of 

LMT. 

Very truly yours, 

(signed) 

Robert deV. Frierson 

Deputy Secretary of the Board 

cc: Federal Deposit Insurance Corporation 

Federal Reserve Bank of Richmond 

Office of the Comptroller of the Currency