Legg Mason net income down 73%

October 21, 1994|By David Conn | David Conn,Sun Staff Writer Bloomberg Business News contributed to this article.

Legg Mason Inc., reeling from the one-two punch of a stagnant securities industry and a costly lawsuit, reported a 73 percent decline in earnings during the latest quarter.

But operating earnings were off only slightly from the previous quarter, in a year when most securities firms are reporting sharp declines in revenues and profits.

Salomon Inc., the parent of Salomon Brothers Inc., yesterday said it lost $104 million, its second consecutive quarterly deficit. PaineWebber Group Inc., the nation's fifth-largest securities firm, reported a 66 percent decline in profits. And Bankers Trust New York Corp., which makes most of its money from trading securities, said third-quarter earnings fell 45 percent.

Other securities firms reporting lower third-quarter profits in the last week include Merrill Lynch & Co., the nation's biggest broker; Bear, Stearns & Co.; and Travelers Inc.'s Smith Barney Inc. unit.

In its fiscal second quarter, which ended Sept. 30, Legg Mason earned $3.1 million, or 25 cents a share, compared with earnings of $11.4 million, or 94 cents a share a year ago.

The latest results included a $2 million pre-tax charge to settle a class-action lawsuit involving the company's Howard, Weil, Labouisse, Friedrichs Inc. subsidiary in New Orleans. The litigation arose from insurance investments Howard Weil made in 1986, the year before the company was acquired by Legg Mason.

The one-time charge helped make the latest quarter's results look particularly bad compared with the second quarter of last year, acknowledged Chairman Raymond A. Mason.

"Unfortunately, it happened to have fallen in the best quarter that we've ever had," he said, referring to the record earnings in the 1993 second quarter.

He noted that on an operating basis, earnings per share were only two or three cents below those of the previous quarter, which ended June 30.

Legg Mason's stock fell 87.5 cents a share yesterday to close at $20.125.

The company was hardest hit in the investment banking segment, where revenues fell almost 69 percent, to $8.4 million in the recent quarter.

Mr. Mason said in a statement that the drop in corporate and municipal finance came mainly because of sharp increases in interest rates since February.

Income from securities trading commissions, the company's largest source of revenues, fell 15 percent, to $29.4 million.

One bright spot was the investment advisory business, where the company earns fees from managing clients' assets. Revenues were up 32 percent in that business, to nearly $21 million, or 23.7 percent of all revenues.

That segment is about to grow substantially when Legg Mason completes the purchase of Batterymarch Financial Management, a Boston-based firm that manages $5.7 billion in assets, much of it invested in international markets.

Mr. Mason said he estimates Batterymarch will add 21 cents a share to Legg Mason's earnings in the first year.

The purchase is expected to close by early December, he said.

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