Bloomberg News

Legg Mason Profit Rises 10% as Cuts Counter Lower Assets

May 01, 2012

The Legg Mason Inc. headquarters in Baltimore, Maryland. Photographer: Andrew Harrer/Bloomberg

The Legg Mason Inc. headquarters in Baltimore, Maryland. Photographer: Andrew Harrer/Bloomberg

Legg Mason Inc. (LM:US), the Baltimore-based money manager with 18 straight quarters of redemptions, said fiscal fourth-quarter profit increased 10 percent as expense cuts offset the impact of lower stock and bond assets.

Net income (LM:US) rose to $76.1 million, or 54 cents a share, in the three months ended March 31, from $69 million, or 45 cents, a year earlier, the firm said today in a statement. Fifteen analysts in a Bloomberg survey had expected earnings of 47 cents per share, excluding some costs. Clients pulled $4.9 billion from Legg Mason funds, compared with $1.3 billion during the prior quarter.

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 after returns lagged behind those of peers in 2007 and 2008. Legg Mason has completed a plan designed to save $130 million to $150 million per year through a combination of job cuts and moving certain technology functions to investment units.

“They’re at the tail end of their restructuring so they’re starting to see some benefits from that,” Macrae Sykes, an analyst with Gabelli & Co. in Rye, New York, said in a telephone interview today.

Legg Mason’s shares fell 2.9 percent to close at an almost four-month low of $25.32 in New York. The stock (LM:US) has declined 32 percent in the past 12 months, compared with the 8.3 percent drop in the Standard & Poor’s 20-company index of custody banks and asset managers.

Expenses Fell

Expenses fell 6.2 percent from a year earlier to $576 million 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.

“Streamlining is in the rear-view mirror, but continued vigilance against cost and improving margin is still a priority,” Fetting said today during a conference call with analysts and investors. “We want to do that by really focusing and growing and leveraging the investments that we have at hand.”

Revenue earned for managing investor funds dropped 9.1 percent to $649 million, as advisory fees and performance fees for beating certain benchmarks fell from a year earlier. Legg Mason boosted its dividend 38 percent to 11 cents a share.

Legg Mason’s Redemptions

The firm’s assets declined 5.1 percent from a year earlier to $643.3 billion. Stock assets, which generally earn higher fees than fixed-income funds, decreased 14 percent to $163.4 billion in the year ended March 31. Bond assets, managed mostly by the Western Asset Management unit, fell 0.1 percent to $356.1 billion and money funds declined 5.8 percent to $123.8 billion, the firm said.

Legg Mason’s investors pulled $2.8 billion from bond funds and $4.9 billion from stocks during the quarter. They deposited $2.8 billion into Legg Mason’s money funds.

Investors will return to equities because of “less appealing returns” in fixed income and more consistent positive stock performance, Fetting said in a telephone interview. Legg Mason Capital Management, the value-oriented stock unit that’s home to Bill Miller, saw redemptions slow during the quarter, he said.

Assets at the firm rose 2.6 percent from the previous quarter as rising equity markets countered the impact of those redemptions. The MSCI ACWI Index (MXWD) of global stocks increased about 11 percent this year through March and the Standard & Poor’s 500 Index (SPX) gained 12 percent.

Miller Steps Down

Legg Mason’sMiller, famous for beating the S&P 500 Index for a record 15 years through 2005, stepped down yesterday as manager of Legg Mason Capital Management Value Trust after trailing the index in four out of five years since 2005. The fund, which has declined at an average annual pace of 8.3 percent over the past five years to rank at the bottom of its group, has advanced 12 percent this year to beat 69 percent of similarly managed funds, according to data compiled by Bloomberg. Sam Peters has taken over as manager of the $2.5 billion fund.

Investors pulled about $8.6 billion from U.S.-registered equity funds industrywide in the first quarter of this year, while depositing about $95 billion into bond funds, according to the Investment Company Institute, a Washington-based trade association.

To contact the reporter on this story: Alexis Leondis in New York aleondis@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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Companies Mentioned

  • LM
    (Legg Mason Inc)
    • $49.53 USD
    • -0.52
    • -1.05%
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