Sources say Staley was toward the top of the company's shortlist, and no surprise: Staley had discussed the role with Legg Mason several years ago while still CEO of JPMorgan Asset Management, before Fetting took the job, according to a person with knowledge of those discussions.
While he didn't end up in the role, the talks were serious and were said to result in JPMorgan Chase CEO Jamie Dimon promoting Staley in 2009 to the helm of the investment bank, a role viewed as one grooming Staley eventually to succeed Dimon.
In July, a broad management reshuffle saw Dimon tap Mike Cavanagh and Daniel Pinto as co-CEOs of the investment bank, replacing Staley; his new chairman title largely has been interpreted as a swan song -- both by those at JP Morgan and rival firms across Wall Street, some of which have been looking to poach him. (Read More: Citigroup Axes 11,000 Jobs, $1.1 Billion in Costs)
In August, Staley was a finalist for CEO at Barclays, people close to the situation have said, after the board ousted Robert Diamond in the face of fallout from a rate-rigging scandal. Amid fear of a further executive exodus and the scrutiny of appointing an American to lead a British bank, the board chose Antony Jenkins, a longtime Barclays insider, for the job in early September. (Read More: Fiscal Cliff, Complete Coverage)
Staley, a Boston native -- and lifetime employee of companies descendant from JPMorgan Chase -- is viewed by colleagues as a straight shooter with proven returns.
In a 2010 interview with Fortune Magazine, Staley said he would "take an office at [hedge fund] Highbridge and sail" if it were deemed he wouldn't take the helm of JP Morgan, the largest U.S. bank by assets. While Staley appears in no rush to leave JPMorgan, people close to him say he now aims to land a role atop a publicly traded company, perhaps an asset manager or specialty finance company.
Staley, through a JP Morgan spokeswoman, declined to comment.
Legg Mason manages $636 billion in assets, a number that has dwindled from a peak of $1 trillion in recent years, with investors and shareholders turning up the heat. The activist firm Trian Investors owns 10 percent of Legg Mason, and a standstill agreement, prohibiting Trian and its founder Nelson Peltz from buying more shares or seeking further action, expired last month.
Peltz has a seat on the company's board and its executive search committee and is said to be dissatisfied with the performance of the company's stock since he first acquired in 2009.
A spokeswoman for Trian declined to comment, citing the company's board seat. Legg Mason spokesperson Mary Athridge said the company looks to complete its search "expeditiously."
—By CNBC's Kayla Tausche; Follow her on Twitter: @KaylaTausche