Legg Ceo Says Citi Deal Is On Track

Mason Notes `Progress' In Exchange Of Brokers, Assets

Legg Stock Dips


The chairman and chief executive officer of Legg Mason Inc. told investors and analysts yesterday that the Baltimore firm is making "dramatic progress" toward completing its deal with Citigroup Inc. that would double the assets it manages for clients.

Calling the next few months "crunch time," Raymond A. "Chip" Mason reiterated that the swap, in which Legg is taking on $437 billion in assets from Citigroup, remains on track to close this quarter. A separate deal to buy Permal Group, one of the biggest players in the business of managing funds of hedge funds, will close ahead of schedule next week, he said. Permal has about $20 billion in assets under management.

"With any acquisition, you're going to have literally hundreds, if not thousands, of moving pieces," Mason said in a conference call. "We do think we've made dramatic progress."

Since Legg Mason and Citigroup agreed to the exchange in June, they have been transferring accounts, changing computer systems and repositioning personnel. Once complete, the deal would remake Legg Mason into the fifth-largest money manager in the world. New York-based Citigroup, the world's largest financial services firm, would expand its brokerage business by taking over Legg Mason's force of about 1,500 financial advisers.

Mason spoke yesterday as the firm announced its 15th consecutive increase in quarterly earnings, which climbed 32 percent to $121 million in the three-month period through September. Much of the attention, however, was on the progress made toward the largest transaction in Legg Mason's history.

Wall Street analysts said investors were frustrated with the lack of information that Legg Mason provided about savings that would be achieved through the swap and other projections. Investors reacted by sending shares down $6.22 yesterday, or 5.7 percent, to close at $103.48 on the New York Stock Exchange.

"Things are in line and better than they initially thought, but they're not providing any hard data to back that up, so the market doesn't tend to give them a lot of credit," said William R. Katz, an analyst with Buckingham Research Group who doesn't own shares in either Legg or Citi. "I thought they had a very strong quarter, but the market doesn't react well to uncertainty."

During the conference call, Mason took pains to say he would be as open as possible about the inner workings of the company while cautioning that he couldn't be completely candid lest he run afoul of securities laws.

In an interview afterward, Mason said managers have felt overwhelmed at times, though he said that started to change several weeks ago.

"There have been moments when we've said, `Oh my God, we're digging into the side of a mountain,' and it was so overwhelming, you would question whether you're getting anything done," Mason said. "Now we have finally turned the corner. There are not many issues we're not cognizant of, or that we don't have our arms around."

Among the steps that have been taken, Mason said, executives have been placed in key positions, including Peter Bain as head of wealth management and Timothy Scheve as chief administrative officer.

Mason also said Citigroup's brokers, who work under the Smith Barney nameplate, would begin selling Legg Mason funds in November. Top brokers met with two of Legg Mason's portfolio managers at a meeting in Phoenix last week, and Legg's star fund manager William H. Miller III will be host of a seminar for about 150 brokers in Baltimore next month.

Headhunters for other firms have been offering jobs to Legg Mason brokers, who have also been wooed with retention packages from Smith Barney. So far, the number of advisers is down just 1.5 percent, according to Legg Mason officials. That division saw its revenue increase 11 percent to $190 million during the fiscal second quarter.

Legg Mason's capital markets division saw its revenue decline 11 percent to $63.5 million during the quarter.

F. Barry Bilson, Legg Mason's senior vice president of finance, said both divisions will come under pressure as they make the transition to their new owners, and those distractions could hurt results.

Meanwhile, the Baltimore company said investors plowed $13.9 billion into Legg Mason accounts and funds during the quarter, and assets under management reached a record of $417 billion. That helped boost the company's earnings to 99 cents a share, which beat the 96 cents a share forecast by analysts surveyed by Thomson Financial.


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