J. Jeffrey Hopson, an analyst at Stifel Nicolaus, said "signs are moving in the right direction."
Noting that Legg's stock traded down Thursday, Hopson said investors are hoping for better operating margin improvements, a financial measure that is restricted by Legg's revenue-sharing agreement with its various money-management divisions. Each subsidiary generally operates as a separate business, under agreements that typically pay their managers a percentage of revenue.
Compensation expenses in the quarter rose on higher revenues compared with the past three months.
"I'd say there are clearly signs of progress, but it's going to take a while to get the complete earnings picture turning around," Hopson said, noting he expects to see an increase in client investments, or positive flows, early next year.
Costs for occupancy also jumped because Legg paid $1.5 million in duplicate rent as it moved its Baltimore headquarters from its Light Street tower to Harbor East in the summer.
Each of Legg's large money management affiliates saw higher assets under management during the quarter.
Performance at ClearBridge Advisors, Legg's largest equity division with $52.4 billion in assets, is "trending closer to positive flows," Fetting said. ClearBridge recently won a $300 million assignment from insurer Principal Financial Group.
Meanwhile, Baltimore-based Legg Mason Capital Management, which struggled last year amid the financial sector meltdown, saw modest positive flows in the quarter and has lured several new clients, Fetting said. Capital Management oversees $16.8 billion in assets.
Fetting also noted that Legg's board is expected next week to approve a new senior executive compensation plan. Spokeswoman Mary Athridge said the structure would establish accountability in the areas of investment performance, net flows and operating margins compared with its competitors for the firm's top management.
