Legg Mason Inc.'s stock is having one of its worst years in two decades. Clients have pulled nearly $4 billion from its mutual funds. Its stock-picking guru is in a slump.
The 71-year-old chief executive's heir apparent decided he didn't want the job, and there's no clear alternative. And lately some of its safest funds have been tainted by declining investments related to subprime mortgages.
One analyst recently told investors to unload the stock -- a rare occurrence on Wall Street even after regulatory changes several years ago made it easier for analysts to speak their minds.
All of this has made CEO Raymond A. "Chip" Mason defensive. At a conference sponsored by Merrill Lynch last month, Mason promoted the Baltimore investment company's record and seemed flummoxed that investors would take a dimmer view.
"Everybody tells us that we were not growing fast enough," Mason told the audience in New York. "We're not doing well. We're not earning enough. We're not getting a return to shareholders.
"I don't really know what else we could have done. ... I think our earnings have continued to do well in spite of what all of you seem to believe."
Legg Mason, whose roots in Baltimore go back to 1899, has become a linchpin of the region's booming financial services industry while evolving from a midsize stock brokerage into one of the world's largest money managers. But the firm and Mason, who has led it for more than 30 years, have battled market naysayers since Mason swapped the brokerage operation he built for Citigroup Inc.'s money management unit more than two years ago. At first hailed as a visionary move, the deal has caused anxiety over its complexity and whether it will match expectations.
Meanwhile, questions surrounding the two most prominent figures at Legg Mason -- Mason and money manager Bill Miller -- add to worries about the company.
Mason is preparing to retire, but Legg Mason's board has been unable to find a replacement. The directors' first pick, James W. Hirschmann III, accepted the job and then bowed out. The board recently turned to an outside search firm for other candidates.
As for Miller, not only is he poised to trail the market for a second year -- after beating it for 15 years in a row -- but also his primary fund's performance is among the worst for all funds of its type this year.
