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Legg Mason Profit Increases 6.8 Percent as Market Rally Boosts Assets

Friday, 25 October 2013 02:23 PM

Legg Mason Inc., the money manager that has struggled with more than five years of net redemptions, said fiscal second-quarter profit rose 6.8 percent as a market rally lifted assets.

Net income increased to $86.3 million, or 70 cents a share, in the three months ended Sept. 30, from $80.8 million, or 60 cents, a year earlier, the Baltimore-based firm said in a statement. Earnings in the quarter included a tax benefit of 16 cents a share, compared with 13 cents in the year-earlier period. Fifteen analysts surveyed by Bloomberg estimated earnings averaging 62 cents a share.

Joseph A. Sullivan, 55, named chief executive officer in February, has said a key part of the firm’s strategy is to earn a bigger portion of its fees from stock and alternative funds rather than fixed income. He’s vowed to stem withdrawals by focusing on Legg Mason’s product lineup and improving performance. Clients pulled $4 billion from the firm’s stock funds while depositing $300 million into its bond vehicles and $2.3 billion into its money funds.

“They have the strategic priorities in place now that new management has been there for some time, but the organic growth story is still sort of uneven” because of volatility in the markets, Michael Kim, an analyst with Sandler O’Neill & Partners LP in New York, said in an interview before the results were announced.

Legg Mason, whose assets peaked at $1 trillion in 2007 as investors flocked to funds run by top-ranked managers such as Bill Miller, oversaw $656 billion at the end of September, a 0.8 percent increase from a year earlier and a 1.8 percent climb from the previous quarter. About 54 percent of the assets were in fixed income. The MSCI ACWI Index of global stocks rose 7.4 percent in the quarter and 15 percent in the year through Sept. 30.

First Deposits

In the quarter ended June 30, the firm had its first net deposits since 2007 into long-term funds, which exclude short-dated assets such as money-market accounts. Its bond funds attracted $900 million in new money while its equity vehicles lost $700 million.

The company reported results before the start of regular U.S. trading. The stock increased 43 percent this year through yesterday, compared with the 35 percent gain in the Standard & Poor’s 20-member index of custody banks and asset managers. The shares have declined more than 70 percent from their peak of $136.40 in February 2006.

Legg Mason said last month it would incur about $10 million in severance and other costs in each of the quarters ending Sept. 30 and Dec. 31 tied to closing and reorganizing businesses. The reorganization includes closing Legg Mason’s emerging-markets equity unit, Esemplia Emerging Markets, and transitioning the client-services business in Canada to the firm’s affiliates. Following the changes, Legg Mason said it expects to see about $2.5 million in net increases in quarterly pretax earnings, beginning in the three months ending March 31.

Higher Assets

The firm’s stock assets rose 10 percent to $169.5 billion in the year ended Sept. 30. Bond assets, managed mostly by Western Asset Management Co., fell 3.9 percent to $355 billion and money funds increased 2.8 percent to $131.5 billion.

BlackRock Inc., the world’s largest asset manager, said Oct. 16 its third-quarter net income rose 14 percent to $730 million. Investors deposited a net $25 billion into the New York-based firm, driven by flows to equity exchange-traded funds.

T. Rowe Price Group Inc. said yesterday that its third-quarter net income rose 9 percent to $267.7 million after clients withdrew a net $7.4 billion, marking the second straight quarter of redemptions for the Baltimore-based company.

Franklin Resources Inc., the San Mateo, California-based fund company, said yesterday that its fiscal fourth-quarter profit climbed 3.4 percent as rising markets boosted assets.

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Legg Mason Inc., the money manager that has struggled with more than five years of net redemptions, said fiscal second-quarter profit rose 6.8 percent as a market rally lifted assets.
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Friday, 25 October 2013 02:23 PM
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