In Tuesday's Wall Street Journal Fund Track column, Kathy Shwiff covered the announcement by Legg Mason chief Mark Fetting Monday to enter into capital support agreements to shore up a money market fund managed by one of
the Baltimore-based firm's subsidiaries. Legg Mason will make capital contributions
of up to $400 million to the fund to cover potential losses tied to two asset-backed commercial paper securities. Because of this, the company is taking an estimated non-cash charge of $195 million or $1.38 per share.
Company Press Release
BALTIMORE, March 31 /PRNewswire-FirstCall/ -- Legg Mason, Inc. (NYSE:
LM) announced that the Company has entered into capital support agreements
(CSAs) to provide support to a money market fund managed by a subsidiary of
the Company. Neither the fund, nor its shareholders incurred a loss in this
transaction. Legg Mason also provided today an update regarding the
anticipated earnings impact of these actions for the quarter ended March
31, 2008 as well as an update to accruals related to previously announced
money market fund support.
"Legg Mason is putting the CSAs in place to provide support at a time
when certain segments of the marketplace continue to experience asset price
fluctuations," said Mark R. Fetting, the Company's president and chief
executive officer. "We are confident in the overall soundness of the
Company's money market funds and remain committed to providing our fund
shareholders with principal stability, credit quality, and current income,
although no guarantees can be given.
"Legg Mason has the financial strength to work through the issues
caused by the current conditions in the credit markets. We are encouraged
by the improved tone in the credit markets after the Fed's substantial
actions to restore liquidity to the financial system. We will continue to
monitor market conditions and may take additional action if we deem it
appropriate," concluded Mr. Fetting.
Under the CSAs, the Company will make capital contributions to the fund
if the fund realizes a loss on the sale of or certain other events relating
to two asset backed commercial paper securities in the portfolio. The
Company will make up to a maximum of $400 million of contributions to the
fund under the CSAs and has fully collateralized this obligation. The CSAs
will terminate in one year. The Company is filing a Form 8-K with further
details of this transaction.
Impact on Quarterly Earnings
Reflecting the entry into the CSAs announced today, the Company has
incurred an estimated $316 million non-cash charge in the quarter ended
March 31, 2008 to its earnings ($195 million net of taxes, or $1.38 per
diluted share) reflecting the fair value of the underlying securities as of
March 28, 2008.
Based on current market conditions and prices, Legg Mason has accrued
an estimated non-cash charge to earnings of approximately $498 million,
($279 million net of adjustments to incentive compensation and taxes, or
$1.96 per diluted share), in the quarter ended March 31, 2008 principally
representing unrealized losses in the securities underlying its cumulative
support to date. This charge consists of the combined impact of the action
announced today together with incremental, non-cash, mark-to-market charges
attributable to previously announced money market fund support, including
securities purchased from money market funds.
About Legg Mason
Legg Mason is a global asset management firm, with $998 billion in
assets under management as of December 31, 2007. The Company provides
active asset management in many major investment centers throughout the
world. Legg Mason is headquartered in Baltimore, Maryland, and its common
stock is listed on the New York Stock Exchange (symbol: LM).
This release contains forward-looking statements subject to risks,
uncertainties and other factors that may cause actual results to differ
materially. For a discussion of these risks and uncertainties, see "Risk
Factors" in Legg Mason's Annual Report on Form 10-K for the fiscal year
ended March 31, 2007 and the subsequent quarterly reports on Form 10-Q.
An investment in a money market fund is neither insured nor guaranteed
by the Federal Deposit Insurance Corporation or any other government
agency. Although a money market fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
a money market fund.