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Friday, February 01, 2013

Three Things to Know From Legg Mason's Earnings

Reported by Neil Anderson, Managing Editor

Today Legg Mason [profile] reported earnings for the third quarter of its fiscal 2013.

For Q3 of fiscal 2013 (ended December 31, 2012), the Baltimore-based multi-boutique asset manager reported a net loss of $453.9 million, or $3.45 per diluted share, thanks to $508.3-million, or $3.86 per share, in after-tax, "non-cash impairment charges related intangible assets." That $3.45 loss surpassed analysts estimates of $3.23 per share, the Baltimore Business Journal reported, though without the non-cash impairment charges Legg's loss would've swung to a gain of $0.70 per share, down from $0.75 in fiscal Q2 2013 but up from $0.55 in fiscal Q2 2012.

Legg's assets under management on December 31, 2012 was $648.9 billion, down from $650.7 billion on September 30, 2012 but up from $627.0 billion on December 31, 2011. Net outflows of $7.5 billion overwhelmed positive market performance of $.57 billion.

The Baltimore Sun, Barron's, Pensions & Investments, Reuters and Zacks.com also covered Legg's earnings.

If you look at Legg Mason's earnings report and the Seeking Alpha transcript of the earnings call today, as well as the coverage of the results, you'll notice three takeaways:

POINT #1: Legg Will Have a New Permanent CEO in the Not-Too-Distant Future

POINT #2: Legg's Sticking With the Affiliate Model

POINT #3: There Are Still Some Asset Class Gaps to Fill

Now to elaborate on those points:

POINT #1: Legg Will Have a New Permanent CEO in the Not-Too-Distant Future
Ever since the board named distribution chief Joe Sullivan to the interim CEO post, speculation has abounded about who will take the post on a more permanent basis. Today on the earnings call Sullivan addressed the speculation, without offering any specifics:
While we're not quite there yet, I think it reasonable to expect an announcement and introduction of our new permanent CEO in the not-too-distant future.
POINT #2: Legg's Sticking With the Affiliate Model
Sandler O'Neill analyst Michael Kim asked Sullivan whether or not the Legg board might reevaluate strategic options once they've picked a permanent CEO. Sullivan defended Legg's multi-boutique model:
Candidly, there has been no discussion on our affiliate model. We're very much committed to the affiliate model. We believe that it is a strategic advantage for us. So we're committed to that model.
POINT #3: There Are Still Some Asset Class Gaps to Fill
Legg backs a number of asset management boutiques including Brandywine, ClearBridge, Royce and Wamco and Sullivan hinted that the board is on the prowl for more acquisitions, specifically in alternatives and global equities:
The strategic work that we've done with the Board has really been largely around strengthening and filling out our asset class portfolio ... We've got alternatives, we've got fixed, we've got equity. But we do have gaps. We do have gaps in alternatives, where there are other types of alternatives beyond fund-of-hedge funds. We have significant gaps in our global equity capability, our non-U.S. equity, whether it be global equity, international or emerging markets. So we've really focused on that
Later on the call, in response to a question from Gabelli analyst Mac Sykes, Sullivan talked more about what types of alternatives he's interested in expanding into:
[I]t's clear that we are currently overweighted in fixed income. And the way we want to correct that is not by reducing our fixed income but by increasing particularly our exposure in non-U.S. equities and in alternatives. And with respect to alternatives, it could be further expansion in the fund-of-hedge funds space, but I think we're most interested in other alternative areas, be it infrastructure, natural resources, private equity, et cetera, et cetera. I'm not going to give you specific percentages right now because that's part of the strategic work that's still underway. But it's clear, both in terms of our organic work and our focus with retail distribution as well as the inorganic and looking to do additional transactions, we want to change that asset mix of business -- our portfolio.
For more information, turn to Legg Mason's earnings report and the Seeking Alpha transcript of the earnings call. 

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