Legg shares soar on word of layoffs, stock buyback

May 11, 2010|By Jamie Smith Hopkins and Lorraine Mirabella, The Baltimore Sun

Baltimore might not like layoffs, but Wall Street does.

Investors drove Legg Mason Inc.'s stock price up 11 percent Tuesday — the biggest jump in nearly a year — after the money manager announced plans to cut 350 jobs nationwide and buy back as much as $1 billion of its shares. Stronger-than-expected earnings, announced after the markets closed Monday, along with the company's plans also helped.

The firm estimates that the job cuts, 250 of which will hit workers in Owings Mills and Legg Mason's Harbor East headquarters, could mean up to $150 million in annual savings. So as employees worried and local leaders bemoaned the loss of jobs, investors cheered.

Two analysts upgraded their ratings of the company Tuesday. A Stifel Nicolaus analyst changed the stock rating to buy from hold, while Bank of America changed its rating from underperform to neutral.

Dan Fannon, a research analyst with Jefferies & Co. who reiterated his "buy" rating Tuesday, thinks the stock buyback plan was probably the biggest catalyst for the run-up in price, but the expected savings from job cuts was the runner-up.

"They put a road map out there for improving operating margins," he said.

Locally, the focus was on jobs — back-office positions such as investment operations, accounting and billing.

"It's obviously disappointing news," said Shaun Adamec, press secretary for Gov. Martin O'Malley.

The layoffs come on top of job cuts in 2008 and represent a big change from grand expectations in 2007, when Legg Mason announced it would move from Light Street to Harbor East in 2009. The company estimated then that it would bring 1,000 jobs to Harbor East.

But while Legg Mason's staff reduction plans are bad for the regional job market, the city is likely to benefit at least in the short term. The company's Owings Mills location will be shut down, with the remaining employees moving to the waterfront headquarters in Baltimore.

About 475 are based in Harbor East now, and the company expects 550 will be there after the 30 percent cut to the local work force is phased in over the next year and a half.

"It is not bad for the city of Baltimore," said M.J. "Jay" Brodie, president of the Baltimore Development Corp., the city's economic development arm.

Brodie defended the city's decision to support a $33 million tax break for the developer of the Legg Mason tower, despite the lower job numbers. He said the company "could easily have gone elsewhere" rather than stay in Baltimore.

"One of the unknowns was what was going to happen to the Owings Mills situation," Brodie said. "It was never final. But the key to our agreement with Legg and the city was that they sign a 15-year lease and occupy 325,000 square feet in the building, and those are still the terms."

Legg Mason's stock closed at $33.38 a share Tuesday, up $3.43. The 11 percent rise was the largest since the roller-coaster ride Legg Mason took in the midst of the financial crisis in 2008 and the beginnings of the Wall Street recovery in 2009.

Some of that ride was up, but most was down. The company's stock remains far below the $72-a-share price at the beginning of 2008.

jamie.smith.hopkins@baltsun.com

lorraine.mirabella@baltsun.com

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