Legg Mason Inc. Sees Revenue Agreement With Permal As Model

Updated on

Legg Mason, Inc. (NYSE:LM), the asset management firm, reported earnings for last quarter today, Legg Mason’s Q3 of FY2013. The quarter incurred a loss of 345 cents GAAP EPS or $454 million, missing the market expectation of 323 cents. The losses were attributable to Legg Mason’s non cash impairment charges due to Permal’s 2005 acquisition which amounted to $734 million. The adjusted EPS was 70 cents or a net income of $92 million, which is more than the $76.8 million revenue reported in the corresponding quarter of last year. Total revenue was $673.9 million, up 7.5% year over year.

Legg Mason Logo

Net new asset growth was down 4.6 percent, which is better than even lower estimates put forward by Wall Street analysts. Legg Mason’s total assets now stand at $648.9 billion. Permal’s assets stand at $16 billion, the FoF also raised $100 million in last quarter, however, the total assets have fallen from what the FoF held in Q2 FY2013. Legg’s International unit experienced net inflows, however, if its US and International operations are put together, the last quarter experienced net outflows.

The highlight of Legg Mason, Inc. (NYSE:LM)’s earnings call today was the implementation of a new revenue sharing agreement with its Permal group of funds to be a model for other similar acquisitions. Legg Mason acquired Fauchier Partners last year, which is also a fund of hedge funds. Legg’s new approach to revenue sharing includes a provision of share in equity to employees, which encourages long term committment and incentivizes their relationship to the company. CEO, Joseph Sullivan said that the new revenue sharing plan provides “a good framework for creating stronger alignment with our other affiliates”. The new plan also includes a multi-year employment agreements with important Permal employees. Going forward the company will apply the same restructuring plan to its other affiliates and acquisitions.

Legg Mason also expects to finalize the acquisition of Fuchier Partners by March of this year, the group manages $5.8 billion in assets and is expanding to US institutional markets. The fauchier and Permal combiation will provide Legg with crucial exposure in equity long/short and event driven strategies.

Legg Mason, Inc. (NYSE:LM)’s competitor BlackRock, Inc. (NYSE:BLK), with close to $3.8 trillion under managment, announced much better profits earlier this month. Its income jumped 24 percent, while the largest asset manager of the world also announced a 12 percent increase in quarterly dividend and an additional buyback of 7.5 million shares. Charles Schwab Corp (NYSE:SCHW) also met Wall Street estimates and announced a profit of $189 million or 15 cents per share, Charles Schwab manages $1.95 trillion in assets.

BMO Capital Markets’ David J. Chiaverini and Richard Fellinger have lowered their estimates for Legg’s GAAP EPS for FY2013 to -$2.67 from -$2.22.  The lower estimates are due to the missed expectations in the present quarter and also a $50 million writedown that the company will take in the next quarter. The analysts have set a price target of $26.

 LM was trading at $26.7, 2.68 percent at the time of writing.

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!