By Eileen Ambrose, The Baltimore Sun
7:45 PM EDT, September 11, 2012
Less than five years after taking the helm of Legg Mason, Chairman and CEO Mark R. Fetting announced Tuesday that he would step down Oct. 1, possibly setting the stage for the sale of parts of the Baltimore-based money management firm.
Legg Mason has struggled for nearly five years to stop investors from pulling money out of its funds, and the company's stock never recovered from the 2008 financial crisis, even as some of its peers rebounded. Shares are down by more than 60 percent from when Fetting became CEO in early 2008.
"Given the abrupt nature of this announcement and the lack of a permanent successor, it seems probable that Fetting's departure was performance based," wrote Christopher Harris, a senior analyst with Wells Fargo Securities, in a report Tuesday.
After the announcement of his resignation, the company's stock rose more than 5 percent to close at $26.85 per share in New York Stock Exchange trading.
"No one should suggest that he was the cause of the problem and didn't achieve some success," said Jeffrey Hopson, a senior analyst with Stifel, Nicolaus & Co. in St. Louis. "It's also fair to say that they haven't fully achieved their goals that he set out, either."
Hopson suggested Fetting's departure may lead to the sale of some of its affiliate investment management firms.
Legg said it will hire an executive search firm to help find a new CEO among inside and outside candidates. In the interim, W. Allen Reed, Legg's lead independent director, will become non-executive chairman and Joseph A. Sullivan, head of global distribution, will fill in as CEO.
Legg's board and Fetting had discussed this move for awhile and concluded this was a good time for a change in leadership, Peter H. Nachtwey, Legg's chief financial officer, told analysts at a Barclays Global Financial Services Conference on Tuesday. Fetting is not being rushed out the door, he added.
"He's done a phenomenal job leading us through an incredible crisis," Nachtwey said. "We're still in the midst of a turnaround."
Legg's board has been asking what is the right leadership as the company gets "back into a growth mode," he said. "Sometimes fresh blood is helpful."
Legg's future is important to Baltimore, where it employs about 430 people. Its headquarters anchors Harbor East and the company plays an important philanthropic role.
Company spokeswoman Mary Athridge said that currently "there is no plan to change anything in Baltimore."
Fetting's resignation comes two months before time runs out on an agreement with shareholder activist Nelson Peltz to not force the sale or merger of any of Legg's investment affiliates, according to Bloomberg News. Peltz's company, Trian Fund Management LP in New York, is Legg's largest shareholder with a 10.9 percent stake. Peltz joined Legg's board in 2009.
Citing Peltz and others, Harris wrote: "It is possible certain of these activists pushed for change at the CEO level as [Legg Mason's] turnaround has been somewhat slow to develop."
Fetting, 57, joined Legg in 2000. The Baltimorean replaced Legg Mason's longtime CEO Raymond A. "Chip" Mason in early 2008 and took over Mason's role as chairman in December of that year.
Fetting took the reins during a rocky time. As the financial crisis unfolded, clients were abandoning Legg funds, including the flagship Legg Mason Value Trust, because of poor performance.
The company continues to suffer from client withdrawals, although the pace of those outflows has slowed. Legg now has about $636 billion in assets under management, down from $1 trillion when Fetting became CEO.
Stifel's Hopson called the timing of the announcement surprising, but not the fact that Fetting was leaving. Fetting never had the support of many in the investment community, he said.
Legg's board initially chose James W. Hirschmann as Mason's successor, but Hirschmann bowed out, preferring to stay in California leading Legg's Western Asset subsidiary.
"Wrongly or rightly, Mark was thought of as perhaps the second choice internally," Hopson said.
Legg has several asset management affiliates, including Western Asset, Brandywine Global, the Permal Group and Royce & Associates. With the shake-up at the top, it's possible that Legg would consider selling some of its attractive affiliates, Hopson said.
Such sales are not a foregone conclusion, he added. The asset management industry is still under pressure following the financial crisis and a number of firms are up for sale, Hopson noted. "Buyers seem to be still cautious," he said.
Analysts at Keefe, Bruyette & Woods in New York issued a report Tuesday saying that the CEO search likely will fuel speculation of a restructuring of Legg Mason.
"However, given that the subsidiary managers largely operate independently with revenue sharing arrangements, we think a fundamental restructuring of the company is problematic at best and not so easily achieved," the report said.
Fetting is stepping down after Legg posted a $9.5 million loss in the first quarter, its first negative quarter since early 2009. Much of the recent loss reflected the costs of a debt refinancing and launching two funds, the company said.
According to Legg's proxy statement for the 2012 fiscal year ended March 31, Fetting was paid $4.9 million, including salary, bonus and stock-based compensation. That's 17 percent less than what he made the year before, a reduction due to the company's financial performance, according to the proxy.
While Fetting does not have a severance agreement with Legg, according to the proxy, he may be eligible to realize several million dollars from stock options and performance shares after his departure.
Fetting, who will remain as a consultant at Legg until the end of the year, was not available for comment. In a statement, he said he was proud of the progress the company has made in the past five years.
"Now is the right time for new leadership to take the baton and continue to move the company forward into its next phase of growth and development," Fetting said.
Copyright © 2014, The Baltimore Sun