is putting in additional support for four money market funds that have exposure to securities issued by structured investment vehicles. The move gained coverage in publications including
The Wall Street Journal
. Legg Mason expects to incur charges of $523 million in the quarter due to the move and other steps to support the funds.
Separately, Legg Mason executives said that they have identified more than $100 million in cost reductions from the corporate budget and that the firm is on pace to realize an aggregate $120 million annually, effective on run rate basis at March 31, 2009.
The reductions, officials said, do not take into account additional expense reductions already taken and continuing with Legg's affiliates. The corporate savings will stem from "across-the-board reductions that provide greater efficiency in the core areas of investment support, distribution and service management."
Legg Mason spokeswoman declined to comment when asked by
The Baltimore Sun
whether the corporate reductions involve layoffs.
Last month, Legg Mason Capital Management
, the unit headed up by Bill Miller
, let go of a third of its workforce.
Company Press Release
Baltimore, MD – December 1, 2008 – Legg Mason, Inc. (NYSE:LM) today announced
additional support for four money market funds with exposure to securities issued by
Structured Investment Vehicles and other similar conduits (SIVs). Legg Mason also
announced that it had renewed for one year a total return swap with a major banking
institution in support of $355 million of SIV securities. In addition, to provide flexibility
during a time of prolonged market turmoil, Legg Mason has obtained amendments to its
existing debt covenants.
The Company also announced it has already identified in excess of $100 million in
sustainable cost reductions from its corporate operating budget and is on track to realize
an aggregate $120 million annually, effective on a run rate basis at March 31, 2009.
Mark R. Fetting, the company’s chief executive officer, commented: “Legg Mason
continues to manage its resources and to take proactive steps in support of our money
market funds during difficult market conditions. Today’s actions give us financial and
operating flexibility to handle potential further market deterioration. We are actively
pursuing a number of options to eliminate exposure to SIVs in the money market funds.
Additionally, we have moved aggressively to restructure our organization and improve
our cost profile to reflect current realities. We have the ability and the resolve to work
through these challenging markets as we act in support of our clients, our funds and our
Legg Mason put in additional support for certain SIV securities in four funds by
increasing by $420 million the maximum capital contribution obligation of the Company
under existing Capital Support Agreements (“CSAs”) and, in one case, providing an
additional CSA to a fund. The Company has fully collateralized these additional
obligations. Neither the funds nor their shareholders incurred a loss in these transactions. As of November 30, 2008, the par value of SIV exposure in the funds was
$2.8 billion, down from $10 billion as of October 31, 2007.
The Company also announced that it had renewed a total return swap with a major
banking institution that supports $355 million in SIV securities that were transferred to
the bank in 2007. The securities covered by the swap decreased from $890 million in
December 2007, as certain principal payments were received throughout the year. The
renewed agreement expires on November 24, 2009. The company has provided $209
million in total to collateralize the swap.
The Company’s amended debt covenants change the maximum permissible leverage ratio
of total debt to EBITDA from 2.5 to 3.0 to provide increased flexibility. The debt
covenants were also amended to change the definition of EBITDA used in the financial
covenants to increase the exclusion of any SIV-related cash charges to $2.75 billion from
$750 million, as the Company seeks options to reduce its SIV exposures. The changes
affect $500 million in an outstanding revolving credit facility and $550 million in an
outstanding term loan.
The Company also confirmed that it is on track to achieve a total reduction of $120
million, or 20%, in its annual corporate operating budget on a run rate basis by the end of
the current fiscal year. These reductions do not include additional expense reductions
already taken and continuing within Legg Mason investment affiliates. The corporate
savings will come from across-the-board reductions that provide greater operating
efficiency in the core areas of investment support, distribution and service management.
Impact on Quarterly Earnings
Reflecting the actions announced today as well as incremental mark-to-market charges
attributable to previous money market fund support, the Company expects to incur gross
charges of $523 million in its quarter to date operating results ($316 million net of
adjustments to operating expenses and taxes, or $2.24 per diluted share).
About Legg Mason
Legg Mason is a global asset management firm, with $842 billion in assets under
management at September 30, 2008. 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).
Armie Margaret Lee
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