Legg Mason's fiscal 4Q loss beats expectations

Legg Mason Inc. today reported a net loss of $325.1 million, or $2.29 per diluted share, for the fourth quarter of the fiscal year ended March 31. This compares with a loss of $255.5 million, or $1.81 per diluted share, in the fourth quarter of 2008. For the fourth quarter, revenue was $617.2 million, down 42% from $1.07 billion in the fourth quarter of the last fiscal year. The quarter was affected by the firm’s elimination of all remaining structured-investment-vehicle securities, which resulted in losses totaling $367.4 million, non-cash impairment charges totaling $82.9 million and a $38.2 million charge for real estate losses, the firm said in a statement. For the full fiscal year 2009, the Baltimore-based firm had revenue of $3.4 billion, down 28% from $4.6 billion in fiscal-year 2008. The net loss for fiscal-year 2009 was $1.9 billion, or $13.85 per diluted share, compared with income of $267.6 million, or $1.86 per diluted share, for the previous year, the firm reported. “We had significant capital losses predominantly due to [structured investment vehicle] exposure,” Mark Fetting, chairman and chief executive, said in the earnings conference call today. The quarter was also challenged by continued volatility in the equity and credit markets and general investor uncertainty, he said. Assets under management at the end of fiscal year 2009 totaled $632.4 billion, down 9% from $698.2 billion as of Dec. 31 and down 33% from $950.1 billion at the end of fiscal-year 2008. The decline in assets resulted from net client cash outflows of $43.5 billion and market depreciation of $21.7 billion in the fourth quarter, Legg reported. Cost savings remains a key priority, Mr. Fetting said. The firm has identified another $25 million in cost savings that he expects to achieve by Sept. 30, he said. Legg reduced its work force across its affiliates by 565 people, or 13%, since September 2008. Still, the firm reported operating expenses of $237 million for compensation and benefits for the quarter, up from $195 million the previous quarter. The compensation reflected “the necessity to retain our key managers,” Mr. Fetting said. Assets under management for April are estimated to be $640 billion, he reported. “The credit and equity markets started to improve in mid-March, and that has continued through April,” Mr. Fetting said. He expects that credit markets will recover in advance of equity markets. “This should benefit Legg Mason because of our strong position in fixed income,” Mr. Fetting said. Legg is accelerating product development, he said. “We have several new products planned, including a blue-chip-bond fund in Europe and a series of products covering institutional and retail products should Western [Asset Management Co. of Pasadena, Calif.] be selected as a manager for the Treasury’s public-private investment fund.”