Legg Mason Profit Falls 54% as Fees Decline on Lower Assets, Redemptions
Legg Mason Net Income Falls 54%
Andrew Harrer/Bloomberg
The Legg Mason Inc. headquarters stands in Baltimore, Maryland.
The Legg Mason Inc. headquarters stands in Baltimore, Maryland. Photographer: Andrew Harrer/Bloomberg
Legg Mason Inc. (LM), the Baltimore-based money manager with 17 straight quarters of redemptions, said fiscal third-quarter profit declined 54 percent as assets fell, lowering fees for managing investors’ money.
Net income dropped to $28.1 million, or 20 cents a share, in the three months ended Dec. 31, from $61.6 million, or 41 cents, a year earlier, the Baltimore-based firm said today in a statement. Profit missed the $42.1 million average estimate of five analysts surveyed by Bloomberg, sending the firm’s shares down as much as 7.9 percent, the most since Oct. 3.
Legg Mason reported $42 million in costs related to restructuring and $1.7 million in compensation expenses fueled by market gains. Chief Executive Officer Mark Fetting has cut jobs to increase profitability and improved performance at fund units as he seeks to end redemptions that started after returns trailed peers in 2007 and 2008.
“I think the turnaround in terms of the flows is a bit ahead of the turnaround from an earnings perspective,” said Michael Kim, an analyst at Sandler O’Neill & Partners LP in New York. “Clearly last quarter was impacted by a sizable restructuring charge.”
Shares Fall
Legg Mason fell 4.8 percent to $26.02 at the close in New York, after earlier declining to $25.16. The stock has declined 23 percent in the past 12 months, compared with the 19 percent drop in the Standard & Poor’s 20-member index of custody banks and asset managers.
Clients pulled a net $1.3 billion during the quarter, including $7.1 billion from bond funds and $4.9 billion from stocks. Investors put $10.7 billion into Legg Mason’s money funds during the quarter.
Assets fell 6.7 percent from a year earlier to $627 billion, while rising from the previous quarter because of $17.6 billion in market gains. During the quarter, Legg Mason’s stock funds, which earn higher fees, rose 5.8 percent to $153.3 billion, while bond fund assets fell 0.8 percent to $352.6 billion, the firm said. Money-fund assets rose 8.7 percent in the quarter to $121.1 billion.
Revenue earned for managing investor funds dropped 13 percent to $627 million, as performance fees for beating certain benchmarks declined 82 percent to $6.1 million compared with a year earlier.
‘Challenging Quarter’
“It was a challenging quarter in the markets and you really have to link what happened in the past six months with the U.S. sovereign downgrade,” Fetting said in an interview.
Still, Legg Mason’s redemptions eased in the quarter at performance at investment units such as Western Asset improved, according to Fetting. The redemptions were the lowest since the third quarter of 2007, according to data compiled by Bloomberg.
Peter Nachtwey, Legg Mason’s chief financial officer, said during a conference call today with analysts and investors that he expected to see earnings of 42 cents to 52 cents for the fiscal fourth quarter, probably in the “mid-to-lower end of that range.”
S&P lowered its earnings-per-share estimate for the 2012 fiscal year to $1.43 from $1.66, and cut Legg Mason’s target share price by $2 to $27. S&P kept its “hold” rating on the shares.
The MSCI ACWI Index of global stocks declined 6.2 percent in the past 12 months while the S&P 500 Index gained 1.3 percent. Investors pulled about $130 billion from U.S.- registered equity funds in 2011, while depositing about $130 billion into bond funds, according to estimates from the Investment Company Institute, a Washington-based trade association.
Bill Miller, famous for beating the S&P 500 Index for a record 15 years through 2005, said in November he would step down as manager of Legg Mason Capital Management Value Trust after trailing the index in four out of five years since 2005. The fund declined 4 percent last year, trailing 53 percent of its peers, according to data compiled by Bloomberg.
To contact the reporters on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net; Alexis Leondis in New York at aleondis@bloomberg.net
To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net
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