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Legg Mason Q4 Loss Worse Than Expected, Shares Tumble

Wednesday, 28 Jan 2009 09:45 AM

Legg Mason posted a bigger-than-expected quarterly loss as withdrawals from its funds soared and the asset manager took charges related to its wealth management division, sending its shares down 15 percent in premarket trade.

The second-largest publicly traded U.S. asset manager said it has taken action to "aggressively" cut costs and would achieve $135 million in cost savings by March 31, more than the $120 million in savings it had earlier envisaged.

The company has $2.2 billion in available cash, enough to cover any losses it may suffer from holding risky investments, it said.

Legg on Wednesday reported a net loss of $1.5 billion, or $10.55 a share, for its fiscal third quarter, ended Dec. 31, compared with net income of $154.6 million, or $1.07 a share, a year earlier.

Excluding intangible-asset impairment charges, the loss was $4.52 a share, bigger than analysts' average forecast of a loss of $4.01, according to Reuters Estimates.

It is the fourth straight quarterly loss for Legg, and its biggest yet. The previous quarters' losses were triggered by charges the company took for lending financial support to its ailing money-market funds.

Legg said it took a non-cash charge of $850.7 million, or $6.03 a share, for goodwill and intangible-asset impairment in its wealth management division.

"The charges resulted both from the impact of current market conditions on valuation metrics and from substantial declines in the assets managed by and earnings contribution of the division," Legg said in a statement.

The company also took charges of $4.70 a share related to the support of its money-market funds. Legg also booked a charge of 16 cents a share for a default by an investment bank on a sublease with it.

Assets under management, the main driver of revenue and profit at money managers, fell to $698.2 billion as of Dec. 31 from $998.5 billion a year earlier and $841.9 billion as of Sept. 30.

Clients pulled out a net $77 billion from Legg's funds in the quarter. That was up sharply from outflows of $20 billion in the quarter ended Sept. 30.

Equity fund outflows were $17 billion, fixed income outflows were $42 billion, and money-market outflows were $18 billion, Legg said.

Legg shares have been among the worst performers in the asset management sector over the past year, falling 72 percent. Over the same period, the Standard & Poor's asset management and custody banks index has dropped 57 percent.

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