Updated from 11:52 a.m. EST

Salomon Smith Barney

, a unit of financial giant

Citigroup

(C) - Get Report

, will buy the investment banking unit of Britain's

Schroders Plc

for 1.35 billion pounds, or $2.21 billion, the companies said Tuesday.

The deal would provide Salomon Smith Barney, which has until now concentrated most of its activities in the U.S., with a broader European presence.

"This is about filling out the investment banking outfit in Europe," said Citigroup spokeswoman Arda Nazerian.

The market's reaction to the announcement, which followed the release of Citigroup's fourth-quarter earnings, was muted. Citigroup was down 1/4 at 57 3/4 in midday trading Tuesday.

Carla D'Artista, managing director of bank stock research at

Friedman, Billings, Ramsey

, said that while the deal would help Salomon Smith Barney increase its European market presence, it was uncertain whether Schroders, a company that has focused on privatizations and equity underwriting, would provide Salomon Smith Barney with enough leverage to gain a big chunk of the more lucrative mergers and acquisitions area of investment banking in Europe.

"Schroders is a big equity underwriter in Europe, they are not among the biggest M&A advisors," said D'Artista, who rates Citigroup a buy and has not done any underwriting for the firm. "This begs the question of what do they (Citigroup) do next?"

A spokesman for Schroders, which has in recent years faced stiff competition in the European market from U.S. investment banks, said the merger would allow the firm to concentrate on its other business, investment managing.

"For investment banking one needs a large global presence. We had a large presence in Europe and to some extent in Asia but no big presence in the U.S.," said Brian Wood, head of public relations at Schroders. "We are now going to concentrate on asset management."

Wood said Schroders, which has $200 billion under management, would use the proceeds of the deal to expand its global asset management activities.

The deal, which came after a few weeks of negotiations, is expected to be completed in May. It is subject to various regulatory approvals.