Lloyds Banking Group PLC (LYG) said Tuesday it is selling parts of its non-core investment management business to Rathbone Brothers PLC (RAT.LN) for up to GBP35.4 million as it continues to dispose of assets following its acquisition of troubled local peer HBOS PLC last year.

The move comes a week after Lloyds, which is 43.5%-owned by the U.K. government, agreed to sell its loss-making Halifax Estate Agencies business to LSL Property Services PLC (LSL.LN) for GBP1 as part of its ongoing strategic review.

Lloyds is grappling with the integration of HBOS and is negotiating with the European Commission and U.K. government over the future shape of its business. Lloyds agreed to buy HBOS in September last year and within weeks the two banks needed a GBP17 billion government bailout.

Lloyds is currently looking at ways of reducing its dependence on the U.K. government and is reported to be drawing up plans that will allow it to avoid having to insure GBP260 billion worth of risky loans and investments through the state-backed asset protection plan.

U.K. Investment management firm Rathbone is purchasing its client portfolio in the Bank of Scotland Portfolio Management Service as well as two other client portfolios under Lloyds TSB Private Banking Ltd.

In total, the deal, which is subject to consent from clients, would see the transfer of around 6,000 customers with a total of around GBP1.27 billion of funds under management to Rathbone.

Lloyds said the price of the business being sold is based on a percentage of the funds under management being transferred to Rathbone. Assuming that all of the GBP1.27 billion worth of funds are transferred, the total price payable to Lloyds would be GBP35.4 million, it said.

The bank said it will continue to manage GBP8.5 billion of assets under management for around 35,000 affluent and "high net worth" clients under its Investment Portfolio Management service, which is not affected by the deal with Rathbone.

Due to the sale of the business, Lloyds said it will cut around 40 staff in Edinburgh by the end of 2011.

At 0757 GMT, Lloyds shares were down 0.5% at 92 pence and Rathbone was up 0.5% at 960 pence. The FTSE100 index was down 0.26%.

MF Global analyst Simon Maughan said the sale appears to be simply a result of the acquisition of HBOS and that it is probably easier for Lloyds to sell the business rather than merge businesses and keep them operational.

Maughan said the price being paid by Rathbone looks "reasonable" and noted that the deal includes a distribution agreement between the two businesses.

Still, Maughan said the sale is part of a series of "tiny" divestments which only appear to be "distractions from the main event."

"The big issue for Lloyds is how it raises GBP25 billion of capital (in relation to the U.K. asset protection scheme)... And the big issue for the E.U. is how Lloyds reduces its role in U.K. retail banking. This transaction (with Rathbone) doesn't change that," said Maughan, who kept his neutral rating on the stock.

Oriel Securities analyst Eamonn Flanagan said the deal is an "excellent" one for Rathbone, giving it increased funds under management, more clients and a presence in Scotland. Flanagan kept his hold rating on Rathbone.

Company Web site: www.lloydsbankinggroup.com

-By Vladimir Guevarra, Dow Jones Newswires, +44 (0) 2078429486, vladimir.guevarra@dowjones.com