Legg Mason to cut 250 jobs in Baltimore area

Layoffs will affect 30 percent of the local work force as money manager moves work to affiliates across the globe

May 10, 2010|By Jamie Smith Hopkins and Andrea K. Walker, The Baltimore Sun

Money manager Legg Mason Inc. said Monday that it will cut 250 jobs in the Baltimore area — 30 percent of its local work force — in an effort to boost profits by shipping the work to affiliates around the world.

Most of the layoffs will be achieved by shutting down the company's Owings Mills offices, with the rest of the job cuts at its brand-new building on the city's waterfront in Harbor East. The move will bring the company's Baltimore-area employment to about 550 — a drastic drop from just two years ago, when nearly 1,000 people worked here.

Legg Mason officials expect the layoffs will happen over the next six to 18 months and that investment operations, billing, accounting and similar back-office jobs will be affected. That work will be handled by affiliates elsewhere in the country and overseas "to take it closer to the client," Chief Executive Officer Mark Fetting said.

Some employees will be offered the opportunity to transfer to the out-of-state affiliates.

"The streamlining is really a tough decision in terms of local impact but a very necessary decision in terms of long-term success of the company," Fetting said. The company has "autonomous investment businesses spread across the world. As is typical in that kind of setup, you want to make the corporate center as lean and mean and strategically value-added as possible."

Legg Mason laid off about 150 at its two Baltimore-area locations in 2008 as it — like many in the sector — was walloped by the financial crisis. But the new "streamlining" comes as Legg announced $63.6 million in profit for the first three months of the year.

Fetting said the company is trying to eliminate duplication and "some inherent inefficiency" to make itself more shareholder-friendly. Legg Mason's share price has dropped 58 percent since the beginning of 2008.

The company, which employs about 3,500 worldwide and has big investment affiliates in California, New York, Boston and London, is targeting 350 jobs in total. The other 100, also corporate service positions, are in New York and Connecticut.

Richard P. Clinch, director of economic research at the University of Baltimore's Jacob France Institute, said communities usually lose back-office jobs when the corporate headquarters moves out of town. But Legg Mason recently indicated a long-term commitment to Baltimore when it settled in its new offices in Harbor East.

"This is the exact opposite of most corporate relocation decisions you read about," Clinch said. "It's bad for Owings Mills; it's bad for the state of Maryland."

Financial services is an important sector in Baltimore County. T. Rowe Price Group also has back-office operations in Owings Mills, and Bank of America has a Hunt Valley outpost.

Legg Mason's announcement comes as the overall job market appears to be improving. It is the first major layoff announced in Baltimore County so far this year, compared with more than a dozen notices of layoffs of 50 people or more in the first half of 2009, said David S. Iannucci, the county's economic development director.

"The irony is that the first and second quarter of 2009 were the bottom for Baltimore County in job losses," he said. "But 250 jobs is always a disappointment. I'm always mindful of the individuals, and for those individuals it's a tragedy."

J. Jeffrey Hopson, an analyst with Stifel Nicolaus, expects that some of the affiliates picking up the back-office work will outsource it. Others are already handling it themselves because they thought they could do it better than the corporate staff.

The decision to ship the work out of Baltimore makes sense to Hopson. The company expects the cuts will save $130 million to $150 million on an annual basis by March 2012, improving operating margins by 6 percent to 8 percent.

"The reality is that you have a structure that really hasn't worked very well more recently for them," Hopson said. "When the business was doing great guns, they could afford to a greater extent to have some inefficiencies. Something had to give in terms of the overall expense level."

Legg Mason has been staging a turnaround after rough times in 2008 and 2009. It reported its fourth straight quarter of profits Monday after losing $330 million in the first three months of last year. Fetting said the balance sheet has improved to the point that its board just authorized a plan to repurchase up to $1 billion in common stock.

But, he said, "what we've had is this lagging profit margin."

"With the progress we've made on the balance sheet and the earnings, we're really down to providing growth in margin for our shareholders," Fetting said.

The market responded Tuesday, pushing the stock up 7.8 percent to $29.95.

Most of the employees hit by this round of layoffs are in Owings Mills, where the lease is up in 2012. Legg Mason employs 326 at the Baltimore County location now and will move the jobs that aren't cut to the headquarters, which currently houses about 475 employees.

Fetting acknowledged that the company's planned layoffs are hitting disproportionately in the Baltimore area.

"We're doing all we can, and I'm doing all I can, to do it the right way for the people involved," he said.

Baltimore Sun reporter Lorraine Mirabella contributed to this article.

jamie.smith.hopkins@baltsun.com

andrea.walker@baltsun.com

Legg Mason layoffs

Where: 250 jobs in the Baltimore area; 100 jobs in New York and Connecticut

When: Over the next six to 18 months

Who: Employees in back-office positions such as investment operations, billing and accounting. Some human resources, finance and legal jobs also will be affected.

Why: The company wants this service work to be handled by investment affiliates, such as fixed-income manager Western Asset Management Co. in California, for efficiency. The affiliates could handle it in-house or outsource it.

Bottom line: Legg Mason expects the cuts will mean annual savings of $130 million to $150 million, starting in 2012.

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