- The Washington Times - Tuesday, January 1, 2008

Legg Mason last week bailed out two cash funds to the tune of $1.12 billion to insulate them from the nation’s credit crunch.

The Baltimore money manager said neither of the funds nor their shareholders experienced any losses as a result of the move. Shares of the firm closed at $73.15 yesterday, up nearly 3 percent.

“This action is consistent with our ongoing efforts to reduce the [asset-backed debt] exposure in our liquidity funds in light of current stresses in the credit markets,” said Raymond A. “Chip” Mason, chairman, president and chief executive.

Both of the funds are structured investment vehicles, known as SIVs, that borrow in the short-term commercial paper market to invest in longer-dated securities ranging from mortgage bonds to bank debt. Money managers profit from the difference between the short-term borrowing rate and long-term returns.

The ongoing mortgage crisis has led Legg Mason and other asset managers to infuse cash into funds with SIV-issued debt, some backed by subprime mortgages, which are defaulting at record rates. Legg Mason made its latest and biggest bailout after spending $338 million to prop up three money market funds, bringing to $1.46 billion the amount it has spent to shore up its cash portfolios.

Legg Mason, which manages more than $1 trillion in assets, said its cash infusion will cost $22.2 million (15 cents per diluted share) in the third quarter. Legg Mason manages $164 billion in cash funds.

SIV-issued debt now amounts to 3.2 percent of Legg Mason’s total cash funds, compared with 6.4 percent a year ago. The company isn’t alone in its retreat from SIVs; Bank of America and SunTrust Banks also have pumped cash into funds with SIV-issued debt.

Of 12 financial analysts tracked by Bloomberg News, eight have “hold” ratings on Legg Mason. Three rate the stock as a “buy” and one as a “sell.”

Daniel T. Fannon, an analyst at Jefferies & Co., noted that $1.8 billion of Legg Mason’s $5.25 billion in SIVs is invested in bank-sponsored funds, “which will likely be backed by sponsoring banks. The remaining $3.4 billion is non-bank-sponsored, leaving the potential for further write-downs and/or charges if the market for these assets does not recover.”

For the quarter ended Sept. 30, profit grew 24 percent to $177.5 million ($1.23 per diluted share) on revenues of $1.17 billion, up 14 percent from a year ago.


Shares of Baltimore money manager Legg Mason Inc. are down 25 percent from a year ago.






87.60 8/6




87.27 9/3




85.41 10/1





76.02 11/5




74.26 12/3




73.15 12/31

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