In the world of finance, asset management is the boring-and-predictable bit. M&A revenues come and go, traders can make or lose billions, and it's the asset managers who provide the steady earnings in good times and in bad.
Unless they're Legg Mason, that is. Somehow, despite being in a steady-income kind of industry, Legg contrived to lose $255 million last quarter. In a well-run asset management shop, this shouldn't happen. Evan Newmark has some pointed commentary:
In spite of cost controls, losing assets under management will erode Legg's profitability. Ongoing exposure to credit problems in the liquidity funds will take up management attention. So what to do when your share price is down and the going gets tough?
Apparently, raise money and go shopping. Legg is launching a $1 billion mandatory convertible that it says will be used for "flexibility." It currently has more than enough to cushion losses in the money market funds, but the new money provides an "extra margin of safety." Overseas acquisitions look appealing as well. With the weak dollar and problems in Legg's key units, the last thing Legg should be doing is paying up for an overseas manager. I shuddered when [CEO Mark] Fetting started talking about China.
As Newmark says, there's not much that Fetting can actually do, given the way that Legg is structured. But he could perhaps take Megan Barnett's advice and put a muzzle on Bill Miller.