Legg Mason swings to a profit in "comeback quarter

Legg Mason Inc (LM.N), the tenth-largest U.S. asset manager, powered past market expectations on Monday with its first profit in six quarters, bolstered by cost savings and rising equity markets.

The results signaled a comeback, said Chief Executive Mark Fetting.

Shares of the company rose 6.3 percent in after-hours trading.

Jefferies & Co analyst Dan Fannon called the fiscal first quarter performance "a step in the right direction" though he noted the company still suffers from net outflows. "It's a turnaround story that continues to show progress," he said.

Net profit in the three months to June 30 was $50.1 million compared with a loss of $36.1 million a year earlier and despite a 42 percent slide in revenue to $613.1 million on a drop in fees. The industry generates the bulk of its revenue from fees based on a percentage of assets under management.

Fetting said the quarter was helped by reduced operating expenses, which fell to $554.8 million from $825.1 million a year earlier. Calling it "A comeback quarter feels right to me," he said in an interview with Reuters.

The company's best-known fund manager, famed stock-picker Bill Miller, has had a comeback much like his employers'. After a disastrous 2008, Miller's $4.2 billion Legg Mason Value Trust is up 18.16 percent for the year so far as of July 19, 12.5 percentage points better than its benchmark S&P 500 Index.

However, Miller still trails the benchmark and rivals over one, three and five-year periods after beating the benchmark for more than a decade.

The industry is in the midst of a consolidation period following rival BlackRock Inc's pending $13.5 billion deal to buy Barclays Group Investors, and Fetting said that deal "solidifies a strong global leadership for BlackRock and the rest of us have to pick up the pace."

Asked if that meant acquisitions for Legg Mason, Fetting said in the near term it is more likely to work with its existing affiliate managers "rather than an outright separate major transaction." He added Legg won't be buying Bank of America's Columbia Management unit, though he declined to elaborate.

Baltimore-based Legg Mason was among the asset managers hardest-hit by the economic downturn, and has been forced to spend heavily in order to prop up troubled assets in its money market funds, starting in the fall of 2007. In May the company also reduced its dividend sharply.

On a per-share basis, net income reached 35 cents in the quarter, up from a loss of 26 cents a year earlier and beating the average forecast of 22 cents a share expected by analysts surveyed by Reuters Estimates. Operating revenue was $613.1 million, just above the average of $612 million expected by analysts.

Legg had $22 billion in outflows from its fixed-income funds and $6 billion in equity outflows.

But assets under management rose 4 percent to $656.9 billion from $632.4 billion at the end of the previous quarter, driven by market appreciation of 9 percent, the company said.

Shares of Legg Mason rose 6.3 percent to $26.50 in extended trading from their $24.94 close in regular trade on the New York Stock Exchange. link....