Legg Mason earnings off 18% in 2nd quarter

But a jump in assets under management

October 20, 2001|By Bill Atkinson | Bill Atkinson,SUN STAFF

Legg Mason Inc.'s profit dropped 18 percent in the company's fiscal second quarter, driven lower by a decline in brokerage revenue, higher legal reserves and lower profit on margin loans to customers.

Still, Legg Mason's assets under management jumped to a record, investment banking revenue nearly tripled and stockholders' equity, or capital, shot past $1 billion for the first time.

The Baltimore-based asset management and brokerage company made $30.4 million in the quarter that ended Sept. 30, down from $37.2 million in the second quarter of 2000.

Diluted earnings per share slipped to 45 cents from 55 cents a year earlier. The results met estimates by analysts surveyed by Zacks Investment Research.

Total revenue in the quarter rose slightly to $335.1 million, up 1.6 percent, to $329.9 million a year earlier.

"It was a pretty typical quarter, strength in asset management led by good performance, good [asset] flows and new acquisitions," said Amy S. Butte, an analyst at Bear, Stearns & Co. "In other parts of the business, positive surprises were offset by other issues."

Shares of Legg Mason closed at $41.22 yesterday, down 78 cents.

Raymond A. "Chip" Mason, chairman and chief executive of Legg Mason, said the quarter was the weakest since September 1999.

"Although we are not happy, we certainly are satisfied with the quarter," Mason said. "If you are in the brokerage and asset-manage business, things just didn't go well. That shouldn't surprise anybody."

The troubled stock market coupled with the Sept. 11 terrorist attacks sapped brokerage revenue, Mason said. Revenue generated from brokerage commissions declined nearly 11 percent in the quarter, to $79.4 million.

Profit was also dampened by a sharp drop in revenue from margin account balances and falling interest rates. Margin revenue, generated largely from fees customers pay to borrow money from the firm to buy stocks, fell 33.2 percent in the quarter to $48.8 million.

The company also said that it set aside an additional $7 million for increased legal expenses.

But there was a bright side to the quarter.

Assets under management jumped 17.6 percent to $157.4 billion, the 41st consecutive quarterly increase, and surpassed the assets of competitor T. Rowe Price Associates Inc., which had $140 billion in assets under management.

Total client assets, which include assets in brokerage accounts, stand at $215 billion.

Profit from Legg Mason's investment advisory business rose 10.4 percent in the quarter to $181.8 million. Revenue from investment banking operations nearly tripled to $27.2 million from a year earlier.

For the first six months of the year, Legg Mason made $65.8 million, down 15.2 percent from a year earlier. The firm made 97 cents per diluted share compared with $1.15 in 2000. Revenue rose 1.2 percent to $681.4 million in the first half of the year.

In recent years, Legg Mason has protected itself by diversifying its business and relying less on brokerage commissions, which rise and fall with the market. Mason said yesterday that the company stands to benefit as the market recovers.

"I look for the next couple of quarters to be better, not worse," Mason said. "Our belief is we are seeing the low ends, we hope, or we think of the bottom side. We are positioned to benefit if this would just turn around."

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