Legg Mason Has a Jarring Quarter

How tough is this market for financial companies? Tough enough that Legg Mason (NYSE: LM  ) posted the first quarterly loss in its 25-year history.

The quarter on which the asset-management company reported Tuesday by was bad enough to prompt Wachovia (NYSE: WB  ) analyst Douglas Sipkin to call it "the worst quarter delivered by an asset manager possibly ever." I think he got a little carried away. Still, it was a bad quarter.

How bad?
Legg Mason reported a net loss of $255.5 million, or $1.81 per share, versus a net gain of $172.5 million, or $1.19 per share, in the same quarter last year. The loss far surpassed what analysts were anticipating, as average expectations called for a $0.27-per-share loss. The top line wasn't too hot either, as revenue fell 6.5%.

What happened?
Two key problems killed the quarter: a write-down totaling $382.8 million and a whopping 5% decrease in assets under management. The latter was mainly attributable to market depreciation. Similar to what we've seen at Wachovia and Bank of America (NYSE: BAC  ) , $291 million of the writedown was for support to money market funds; a $94.8 million charge resulted from a reduction in fees generated from management contracts caused by falling asset values and lower return on investment. 

Legg Mason also announced a plan to raise $1 billion in capital through an equity offering. In doing so, the company becomes the first fund group to raise public capital in order to shore up losses from the credit crisis.

What does this mean for the company?
So, let's see what we have here. The asset manager has been forced to write off massive amounts of money resulting from the credit crisis, investors are pulling money out of their funds because of lousy performance, and the market environment stinks.

Really, though, it's not all that bad. First of all, Legg Mason isn't alone. The company's main competitors, BlackRock (NYSE: BLK  ) , AllianceBernstein (NYSE: AB  ) , and Franklin Resources (NYSE: BEN  ) , also reported earnings below expectations. Additionally, Legg Mason has reduced its exposure to structured investment vehicles (SIVs), and they should be less of a problem going forward. Further, the performance of the overall market was woeful in the first quarter, but it won't stay this way forever.

Is it any good to buy?
In my opinion, Legg Mason is a well-run company that has fallen victim to short-term peculiarities of the environment. The factors that negatively affected this quarter should be less prevalent going forward. Given the stock's 46% drop in the past year, I think the company looks attractive.

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