Legg Mason’s Net Income Falls 62% on Fund Redemptions

Legg Mason Inc. (LM), the Baltimore- based money manager that appointed a new chief executive officer in February, said fiscal fourth-quarter profit fell 62 percent as client withdrawals from its stock and bond funds continued.

Net income declined to $29.2 million, or 23 cents a share, in the three months ended March 31 from $76.1 million, or 54 cents, a year earlier, the firm said today in a statement. Fifteen analysts in a Bloomberg survey had expected earnings per share of 20 cents.

The company named Joseph A. Sullivan as CEO in February, ending a five-month search for a leader to reverse five years of client redemptions and calm restive fund affiliates. Legg Mason, whose assets peaked at $1 trillion in 2007 as investors flocked to funds managed by top-ranked managers such as Bill Miller, oversaw $665 billion at the end of March. Clients pulled a net $3 billion from stock and bond funds in the quarter, compared with $15.1 billion in the prior three months.

“There are some signs that the flow story or organic growth story is making some progress although I would still certainly characterize it as a work in progress,” Michael Kim, an analyst with Sandler O’Neill & Partners LP in New York, said in an interview before the results were announced. “Some affiliates are doing better and some continue to suffer from performance and/or positioning headwinds.”

Higher Dividend

In January, the firm said it was folding Miller’s Legg Mason Capital Management division into its ClearBridge Investments equity unit as assets tumbled to $7 billion from about $70 billion in 2007. Chief Financial Officer Peter Nachtwey said last month the firm may close some of its 32 offices and reduce the 400 funds it offers.

Earlier this month, Legg Mason said it would take an $8.5 million expense in the quarter for the cost of separation agreements for Ron Dewhurst, the former head of global investment managers, and Thomas Lemke, general counsel and head of governance. Legg Mason also will take a charge of $45 million to $55 million in the quarter related to reducing its office space, which will eventually result in annual savings of $10 million, the company told analysts in February.

Legg Mason raised its quarterly dividend last week by 18 percent to 13 cents a share.

The company reported results before the start of regular U.S. trading. The stock increased 22 percent this year through yesterday, compared with the 18 percent gain in the Standard & Poor’s 20-member index of custody banks and asset managers. Legg Mason has fallen about 77 percent since reaching a peak of $136.40 in February 2006.

Assets Increase

The firm’s assets increased 3.3 percent from a year earlier to $664.6 billion, which includes about $5 billion from its March acquisition of fund-of-hedge-funds unit Fauchier Partners. Stock assets, which generally earn higher fees than fixed-income funds, fell 1 percent to $161.8 billion in the year ended March 31. Bond assets, managed mostly by Western Asset Management Co., rose 2.5 percent to $365.1 billion and money funds climbed 11 percent to $137.7 billion.

Industrywide, investors deposited $21.5 billion into U.S.- registered equity mutual funds that buy U.S. stocks in the first quarter, while putting $69.1 billion into taxable bond funds, according to data from research firm Morningstar Inc. (MORN)

Sullivan, who led the firm on an interim basis after CEO Mark Fetting stepped down on Oct. 1, faces a push for greater independence by some of Legg Mason’s eight investment affiliates. Sullivan has indicated he’s more open to working with the units, which include fixed-income manager Western Asset and equity managers such as ClearBridge Investments and Royce & Associates. Legg Mason’s affiliates operate independently with separate revenue-sharing agreements.

Legg Mason reported a loss of $453.9 million, or $3.45 a share, for the three months ended Dec. 31, as redemptions and declining assets forced the company to write down assets tied to the 2005 takeover of Citigroup Inc.’s asset-management business and to its Permal hedge-fund unit. It was the biggest quarterly shortfall since it posted a $1.5 billion loss at the end of 2008.

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.