Legg Mason to take $523 million charge in quarter

December 02, 2008|By Hanah Cho | Hanah Cho,hanah.cho@baltsun.com

Baltimore's Legg Mason Inc. said late yesterday that it expects to take a $523 million charge in the quarter ending Dec. 31 to provide more support for four money market funds invested in troubled asset-backed securities.

The money manager has stepped up numerous times to shore up the money market funds managed by its Western Asset Management Co. subsidiary.

Including the most recent support, Legg has committed $2.6 billion to bolster money funds exposed to so-called structured investment vehicles. SIV-issued debt, some backed by mortgage-linked securities, have plummeted in value amid the credit turmoil. SIVs were popular investments for money funds looking to increase yields.

Separately, the company said it has identified more than $100 million in "sustainable cost reductions" from its corporate budget, on track with a previously announced cut of 20 percent in annualized corporate expenses. Legg said the corporate reductions do not include cost-cutting measures within its affiliates.

Last month, Legg Mason Capital Management, a subsidiary run by famed stock picker Bill Miller, laid off a third of its employees amid the falling value of its assets. Those assets have been hurt by poor performance and clients pulling money out of its mutual funds.

When asked whether job cuts are involved in the corporate reductions, spokeswoman Mary Athridge declined to comment yesterday.

In the latest money-market action, Legg said it increased its capital contribution by $420 million for four funds under existing capital support agreements.

Moreover, the company renewed an agreement with Barclays Bank PLC to support $355 million in SIV-issued debt that was transferred to the bank last year. Legg is providing $209 million in collateral under the agreement that expires Nov. 24, 2009.

Neither the money funds nor shareholders incurred any loss in the transactions, the company said.

After adding in charges for the reduced value of securities in previously supported money funds, the noncash, after-tax charge for the quarter is expected to be $316 million. That comes to $2.24 per diluted share.

Legg has incurred a total of $1.7 billion in charges related to its money market funds, or $977 million after taxes and operating expenses.

Legg's money market funds have about $167.1 billion in assets. As of Nov. 30, the value of SIV exposure in the funds was $2.8 billion, down from $10 billion on Oct. 31, 2007.

While expanding support for the money funds, the company said it's pursuing a permanent solution to eliminate its SIV exposure.

"Additionally, we have moved aggressively to restructure our organization and improve our cost profile to reflect current realities," Legg Chief Executive Officer Mark R. Fetting said in a statement.

During the past year, Legg's financial performance has suffered as costs to support the money funds and client redemptions weighed down profits. It reported three consecutive quarterly losses.

Yesterday, the company said it amended its debt covenants to "provide flexibility during a time of prolonged market turmoil."

Legg shares lost $3.10, or 17.2 percent, to close at $14.92 yesterday. Yesterday's announcement was released after financial markets closed.

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