"It's not a big surprise," said Jeffrey Hopson, a senior analyst with Stifel, Nicolaus & Co. in St. Louis.

Hopson said there are pros and cons to naming an insider as CEO.

"Some outside observers would have thought that this company, given its challenges, might have needed a fresh set of eyes to reassess and potentially make significant changes," Hopson said.

On the positive side, he said, "the company has been through a period of uncertainty," and an insider provides immediate stability. This way, he said, Legg employees can "continue on without these major uncertainties hanging over them."

Still Sullivan's active tenure as interim CEO sent a message to employees that changes are coming, Hopson said.

"He has been working hard, suggesting to the organization that while he has been a Legg Mason employee, the status quo is not acceptable," he said.

Michael Kim, an analyst with Sandler O'Neill & Partners in New York, said the widely anticipated appointment of Sullivan removes an "overhang" from the stock.

"The board and senior management can now really fully focus on the task at hand, which is obviously to shift into more of a growth mode," Kim said.

Brian Rogers, chairman and chief investment officer of Baltimore-based T. Rowe Price, issued a statement supporting Sullivan's appointment.

"Joe Sullivan is a seasoned executive who knows his way around the Legg Mason organization and can work well with its investment groups," Rogers said. "We are confident that he will continue to stay focused on taking actions to build shareholder value."

T. Rowe Price, through its funds and other portfolios, is Legg's largest shareholder, with a 10.4 percent stake in the company as of the end of last year.

Analysts say Fetting resigned under pressure from Legg director and activist shareholder Nelson Peltz, whose Trian Fund Management LLP is the second-largest shareholder, with 9.78 percent of Legg as of September. Peltz hasn't publicly weighed in since Fetting's departure, but he has a track record of pushing companies to take steps to raise their shareholder value.

In a statement Wednesday, Trian said, "We believe Joe brings the leadership skills required to strengthen and expand the capabilities of Legg Mason to create long-term value for Legg Mason shareholders."

Legg's stock price has fallen nearly 80 percent since peaking in 2006. And it continues to see money flow out of its funds. At the end of January, Legg had $654.1 billion in assets under management, compared with more than $1 trillion six years ago.

Legg's investment offerings are heavily weighted in fixed-income and money-market funds, said Greggory Warren, a senior stock analyst with Morningstar Inc. Though risk-averse investors have been pouring money into such conservative investments in recent years, Legg has seen an outflow because of poor performance in some of its funds, he said.

Legg also recently reported a third-quarter loss of $454 million — the largest in five years — following a writedown of assets at one of its affiliates.

After Fetting's departure last fall, speculation mounted about whether the company would remain intact or sell some of its affiliates. Legg will have eight major affiliates after it combines Capital Management with ClearBridge this year. Legg employs 2,984 people, including 425 at its headquarters in Harbor East.

Analysts said Sullivan's appointment signaled that Legg will continue in its current form.

"I don't think you will see any sort of a breakup of the franchise," Sandler O'Neill's Kim said.