By Eileen Ambrose, The Baltimore Sun
6:32 PM EDT, July 23, 2013
Legg Mason Inc. announced the appointment of Dennis M. Kass, an independent director and former CEO, as its new chairman during the annual shareholders meeting Tuesday.
Kass, 62, joined the board of the Baltimore-based money manager in April and replaces W. Allen Reed, who had held the position since September after CEO and Chairman Mark Fetting announced his resignation.
Reed told shareholders he was stepping down for "personal family reasons" and never intended to stay in the post for long. He will remain on Legg's board, where he has served since 2006.
CEO Joseph A. Sullivan, who permanently replaced Fetting in February, said after the meeting that he has learned from Kass in just the few months he has been on the board.
"He's a seasoned asset-management executive," Sullivan said. "He's a former CEO, and as a new CEO, I can look to him for some guidance."
The new chairman has experience in the investment world and government. Kass retired last year as chairman of Jennison Associates, an asset management company owned by Prudential Financial Inc. Kass had been CEO and chairman of Jennison from 2003 to 2011. He also worked for J.P. Morgan's investment management unit, including serving as vice chairman of J.P. Morgan Fleming Asset Management, according to Legg.
Kass, who is based in Florida, also spent two years as assistant secretary of labor for pension and welfare benefits under the Reagan administration in the mid-1980s.
Asked why he wanted the job, Kass responded that Legg is a great franchise.
"It has a storied history. It, like many other investment management organizations, great ones, experienced significant stress through the financial crisis and the recession," Kass said. "But it is strong. It is extremely well-positioned to capitalize on its business opportunities going forward."
Macrae Sykes, an analyst with Gabelli & Co. in Rye, N.Y., said Kass brings a "distinguished background.
"He could bring a wealth of experience to the organization," the analyst said.
Legg has seen a great deal of change since its last annual meeting.
Fetting stepped down in October after less than five years at the helm under what analysts said was pressure from activist shareholder and director Nelson Peltz. Fetting had been unable to prevent investors from bailing out of Legg's mutual funds and failed to revive the company's lackluster stock.
The company continues to fight an outflow of money. Total assets under management at the end of June reached nearly $645 billion, down about $20 billion from three months earlier.
Legg's stock price, though, is up about 30 percent since Fetting's announced departure. It closed Tuesday at $34.88 a share, up 26 cents.
On Tuesday, Peltz told reporters before the annual meeting that the company is headed in the right direction.
"I am happy with the way things are going with Legg Mason," he said.
Sullivan also told shareholders that things "are back on track."
He said the company's goal is to weather all market cycles by diversifying its client base as well as its product offerings to include more equity and alternative investment options. Sullivan added that the company is trying to improve its investment performance and work as efficiently as possible.
Sullivan was asked at the meeting about the effect of rising interest rates at Legg, where 55 percent of the assets under management are in bonds, whose prices fall as rates go up.
Like other investment companies, Legg saw small investors pull some money out of bonds, but its institutional investors have stayed put, Sullivan said.
"The vast majority of our fixed-income book of business is institutional. They tend not to be pulling things in and out," he said. "If anything, when a certain sector sells off and gets cheap, they are actually required to buy more and rebalance."
Legg hasn't seen an influx of money from rebalancing yet.
He also was asked whether Legg anticipated any other impairment charges. The company suffered a loss of nearly $454 million earlier this year, after a $734 million writedown of certain assets.
Sullivan said Legg conducts an annual review in December on this issue but doesn't expect another charge.
"We are comfortable where we are right now," he said.
Legg plans to release its first-quarter earnings Thursday. Gabelli's Sykes anticipates the company to report earnings of 37 cents per share, compared with a loss of 7 cents a share for the corresponding quarter a year ago.
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