For the third consecutive quarter, Baltimore-based Legg Mason turned a profit. Legg Mason posted net income of $44.9 million, or 28 cents a share, for the third quarter ended December, compared with a net loss of $1.49 billion in the year ago period. The firm's latest results, however, fell short of the 31 cents a share expected by analysts, according to a survey by Thomson Reuters.

The latest quarter included charges of 428.3 million pre-tax, or $0.11 per diluted share related to sublease agreements the company entered into during the quarter, while last quarter included $22.0 million, or $0.09 per diluted share in costs related to the exchange of equity units.

Legg Mason saw revenues rise 5 percent to $690.5 million from $659.9 million for the quarter ended September 30, 2009. Adjusted cash income also rose to $93.2 million from $90.0 million in the second quarter.

Now for the bad news -- Legg Mason's assets under management shrunk 3 percent in the third quarter to $681.6 billion, down from $702.7 billion as of September 30 2009, and down 2 percent from December 31 2008's assets of $698.2 billion.

Regarding the decline in assets, Mark Fetting, chairman and CEO, cited increased real estate losses and outflows, which rose from $8 billion in the second quarter to $33 billion, driven predominantly by fixed income outflows of $24 billion this quarter.

“While outflows increased this quarter, stronger performance at Western Asset and Permal led to substantially higher performance fees,” stated Fetting. “We are cognizant of the fact that it takes some time for flows to follow performance and we are working hard in conjunction with our distribution teams to position ourselves to capture assets as improved performance continues to reflect in our medium and longer term numbers. We will also increase our vigilance on cost and efficiencies.”

As for strengthening the company's position this quarter, Fetting noted the company is making efforts to reduce its debt load and stock. Currently, Legg Mason's balance sheet has a debt to capital ratio of 25 percent, with $1.4 billion in cash and $2.0 billion in debt.

“Operating margins, as adjusted have improved over the past three quarters and net income and cash income, as adjusted, excluding real estate losses this quarter, continued to trend in the right direction,” Fetting stated in the release. “However, we can pick up the pace in restoring growth and improving margins.”
Pasadena, California-based Western Asset managed roughly 55 percent of Legg Mason's $694 billion in assets as of November 30. 

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