Legg Mason Posts $255.5 Million Loss in Q4

From the Associated Press

Legg Mason lost more than $250 million in the fiscal fourth quarter as the Baltimore-based investment manager set money aside for possible bailouts of funds suffering from turbulent markets, the company said.
Legg Mason lost $255.5 million ($1.81 per share) in the three months ending March 31, compared with profit of $172.5 million ($1.19) in the fourth quarter last year.
The main reason Legg Mason lost money during the quarter was a series of "capital support agreements" the company entered into with some of its own funds.
Legg Mason runs money market funds, which promise clients complete safety at a low interest rate. The funds lend clients' money at a higher interest rate and profit off the spread between what it collects on those loans and what it pays to clients.
Many of the loans these funds have issued have become illiquid and unreliable amid tumultuous capital markets. To ensure money-market clients get their money back, Legg Mason agreed to cover any losses in these funds.
The company committed $291 million after taxes to supporting these funds, money siphoned from profit. Legg Mason also recorded a $94.8 million loss because some management contracts the company bought have lost value.
Revenue, which the company derives mainly by charging fees for managing clients' investments, slipped 6 percent, to $1.07 billion.
The fees Legg Mason charges for managing investments are based mostly on two things: the total value of investments managed by the company's funds, and the return on those investments.
Investments shrank 2 percent compared with the end of the fourth quarter last year, to $950.1 billion.
Clients withdrew $24 billion from their stock and bond funds in the fourth quarter. Investments under management contracted also because many of the stocks and bonds in the company's funds lost value, Legg Mason said.
"This past quarter was among the most difficult we have ever faced and we are disappointed with our results," chief cxecutive Mark R. Fetting said in a statement.
For fiscal 2008, profit was $267.6 million ($1.86 per share), compared with $646.8 million ($4.48) in fiscal 2007.
Legg Mason Inc. plans to raise $1 billion by selling a special kind of stock to raise enough cash to continue supporting company-run funds struggling amid turbulent capital markets, the investment manager said Tuesday.
The investment manager plans to sell 20 million "equity units" for $50 each.
Each equity unit is a contract entitling the holder to buy a share of Legg Mason's stock and 1/20 of a $1,000 bond that matures in 2021.
The company said it planned to use money raised from the sale for "general corporate purposes," as well as continuing to provide support to its money-market funds.
Legg Mason, which manages $950.1 billion of clients' money, lost $255.5 million in the fiscal fourth quarter because it needed to commit money toward possible bailouts of funds stung by tumultuous capital markets.
The company also has $425 million in bonds maturing in July.
Legg Mason has $1.19 billion in readily accessible cash, an amount that will swell to $2.16 billion if the sale is successful.
How much the stock can be bought for and what interest rate the bonds will pay is yet to be negotiated. Citi, Merrill Lynch, Goldman Sachs and JPMorgan are running the sale. Those underwriters will be granted options to purchase up to 3 million additional equity units for a total of $150 million.
Legg Mason estimates that after paying underwriters' fees, the company will collect $967 million from the sale.
The company earlier this year raised $1.25 billion by selling a special class of bond to private equity firm Kohlberg Kravis Roberts.

By Terri Rupar  |  May 6, 2008; 11:34 AM ET  | Category:  Finance
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