Legg Mason Earnings to Be Affected by $23 Million Expense

Legg Mason Inc. (LM), the money manager with 18 straight quarters of redemptions, said its earnings will be affected by pretax charges related to two new investment vehicles.

Expenses related to the initial public offering of Western Asset Mortgage Capital Corp. real estate investment trust in May and ClearBridge Energy MLP Total Return Fund Inc., a closed-end fund that opened this month, will total about $23 million, the Baltimore-based firm said today in a regulatory filing. The charges will affect results for the quarter ending June 30.

Chief Executive Officer Mark Fetting has cut jobs to increase profitability and sought to improve performance at fund units as he tries to end redemptions that started when returns lagged behind those of peers in 2007 and 2008. Legg Mason has completed a plan designed to save $130 million to $150 million a year through a combination of job cuts and moving certain technology functions to investment units.

The firm is expected to report earnings of 29 cents a share for the current quarter, excluding some costs, according to the average estimate of 13 analysts in a Bloomberg survey.

Legg Mason will also have a pretax non-operating charge that had already been announced of about $69 million resulting from extinguishing convertible notes that paid 2.5 percent and were due in 2015, according to today’s filing.

In May, the firm said it would repurchase $1.25 billion of convertible senior notes from private-equity firm KKR & Co. to reduce its total debt. Legg Mason also said at that time it would accelerate $155 million in stock repurchases and plan to buy back an additional $1 billion in shares. Apart from returning cash to shareholders, the refinancing of the notes would help Legg Mason free up cash to make targeted acquisitions, Fetting said last month.

Bank Loans

Legg Mason’s fiscal fourth-quarter profit increased 10 percent as expense cuts offset the impact of lower stock and bond assets. Expenses fell 6.2 percent to $576 million in the three months ended March 31 as Legg Mason completed its restructuring plan. Costs from that plan fell to $1.9 million in the quarter, compared to $15.7 million a year earlier.

The money manager obtained $1 billion of bank loans used in part to pay off borrowings under its revolving credit line, according to today’s filing. The new debt consists of a $500 million term loan and $500 million revolver, both of which mature in June 2017.

To contact the reporter on this story: 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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