» Legg Mason’s 3Q profit declines 54 percent

Legg Mason’s 3Q profit declines 54 percent

Posted: 10:44 am Fri, January 27, 2012
By Staff and Wire Reports

Legg Mason Inc. said Friday that its fiscal third-quarter profit declined 54 percent as assets fell, lowering fees for managing investors’ money.

Baltimore-based Legg earned $28.1 million, or 20 cents a share, in the quarter that ended Dec. 31, from $61.6 million, or 41 cents, a year earlier. Profit missed the $42.1 million average estimate of five analysts surveyed by Bloomberg.

Legg’s shares were down $1.80, or nearly 6.7 percent, to $25.52 at 10:40 a.m. Before Friday, the stock has declined 19 percent in the past 12 months, compared with the 18 percent drop in the S&P’s 20-member index of custody banks and asset managers.

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. 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.

“The quarter was difficult for flows, given the environment overall,” Macrae Sykes, an analyst with Gabelli & Co. , said before the results were announced.

Legg Mason’s earnings missed estimates as the firm reported $42 million in costs related to restructuring and $1.7 million in compensation expenses fueled by market gains.

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.

“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.

The MSCI ACWI Index of global stocks declined 6 percent in the past 12 months while the Standard & Poor’s 500 Index gained 1.7 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.

Bloomberg contributed to this article