'Difficult times' at Legg Mason

'We have work to do,' chief tells shareholders

July 23, 2008|By Hanah Cho | Hanah Cho,Sun reporter

Presiding over his first annual meeting yesterday as Legg Mason Inc.'s chief executive, Mark R. Fetting worked to reassure shareholders that the Baltimore money manager will overcome its slumping performance while acknowledging that he understands their frustration with the company.

"Clearly, these are difficult times for the market. In fact, at Legg Mason, we have work to do in our own business, and we are doing it," Fetting, who became president and CEO in January, told a packed crowd of about 150 people.

"I'd like you to be mindful as a fellow shareholder, I'm keenly, keenly aware of the decline in the stock price," he added. "It's a tough time in the market. If you look at asset managers generally, they've declined on a year-to-date basis, somewhere between 25 to 30 percent. If you look at our decline, it's been basically double that. These indeed are challenging times."

The turmoil in the credit and housing markets has scorched a host of financial institutions, forcing many executives to explain their company's dismal performances in recent months to disappointed shareholders. Wachovia Corp., which recently ousted its CEO, reported yesterday an $8.9 billion loss because of charges and reserves for bad mortgage loans. Wachovia also cut its dividend.

Despite its own challenges, Legg announced yesterday an unchanged quarterly dividend of 24 cents per share. The move was welcomed by investors, who pushed Legg shares up $4.41, or 13.65 percent, to close at $36.72 yesterday.

A year ago, Legg's stock was trading around $100, and its annual profit rose to nearly $650 million. Today, the stock has lost nearly half its value since the beginning of the year. Its net income for the fiscal year that ended March 31 dropped 59 percent to $267.6 million. And Legg posted its first quarterly loss during the January-to-March period since becoming a public company in 1983.

Legg was hit hard during the past year as some of its money market fund investments in troubled asset-backed securities soured. Legg has committed $2.147 billion to certain funds to cover unrealized losses from so-called structured investment vehicles.

Nevertheless, Fetting noted yesterday that assets in money market funds rose to about $180 billion in June, from $167 billion in the quarter that ended March 31. Legg also recorded revenue of $4.6 billion last fiscal year, up 7 percent from the previous year.

To strengthen its balance sheet, Legg raised more than $2 billion through debt and stock sales this year to support its liquidity funds and finance future acquisitions and other initiatives.

Legg is scheduled to release its most recent quarterly earnings Friday. The firm said this month that it would take a $265.3 million noncash charge in the quarter that ended June 30, more than half of it to support money market funds.

On top of its money market support, Legg has been hurt by weak performance by its star managers, most notably Bill Miller. Clients have been withdrawing money from mutual funds, including Miller's Value Trust fund, for several quarters.Responding to a shareholder question about the firm's star-manager system, Fetting said Legg managers remain committed to their investment philosophies, instead of falling victim to the latest investment craze as other firms have done in the past. Legg's fund managers operate their businesses largely autonomously.

Fetting read to shareholders a portion of a letter he sent to Legg employees last week.

"We remain a very strong company with strong cash flows, ample capital and a diversified asset base that is still among the best in our industry," he said. "With more than a century of experience, Legg Mason knows how to manage through market cycles. And we understand the challenges and opportunities that present themselves in times like these."

Asked about a recent Credit Suisse report naming Legg as one of several asset managers that could be sold during the next two years, Fetting stood by the company's independence.

"I think people have good confidence in our model," he said after the meeting at the Center Club at the top of the firm's Inner Harbor headquarters. "While some would question how we responded to certain issues, I think we've been able to deliver on our core earnings, particularly in this market environment."

Legg shareholders also elected six board members at the meeting. But two shareholder proposals failed to gain a majority vote.

One, proposed by the International Brotherhood of Electrical Workers' pension fund, called for an independent, noninsider director to serve as chairman. About 57 percent of shares were cast against it versus nearly 12 percent for it.

Former CEO Raymond A. "Chip" Mason, who oversaw the company for 38 years before handing over the job to Fetting, serves as the nonexecutive chairman.

The other proposal would have given shareholders a nonbinding vote on executive compensation. The American Federation of State, County and Municipal Employees submitted the so-called "say on pay" proposal.

Shares cast against the proposal were 33.4 percent, compared with 32.3 percent for it.

Fetting's compensation package totaled $4.7 million in the fiscal year that ended March 31, while Mason's paycheck totaled $8.1 million. Legg directors cut their pay from the previous year in light of the company's recent weak performance.

hanah.cho@baltsun.com

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