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Legg Mason's quarterly earnings up 31 percent

Joseph A. Sullivan is CEO of Legg Mason.
Joseph A. Sullivan is CEO of Legg Mason. (Kenneth K. Lam / Baltimore Sun)

Legg Mason earned $94.5 million between April and June, a 31 percent increase from the same quarter last year, the Baltimore-based money manager reported Friday.

The earnings amounted to 84 cents per share. In the same period last year, Legg Mason made $72.2 million, or 61 cents per share.

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Client assets under management by the firm declined to $699.2 billion as of June 30, down from $702.7 billion on March 31, which the company said reflected the stock market's overall decline during the quarter.

Joseph A. Sullivan, Legg Mason's chairman and CEO, characterized the quarter as "solid" in a conference call with investors and said he was pleased with long-term net inflow of $1.3 billion and liquidity inflow of $2.3 billion.

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"As you know, this has been a challenging time for the markets," said Sullivan, referring to turmoil in overseas markets and the possibility of an interest rate increase in the United States this year. "Investors are inundated with headlines and financial programs that highlight issues they are dealing with today. ... Such consternation has caused investors to pause."

In June, the money manager filed an application with the U.S. Securities and Exchange Commission to offer exchange-traded funds, and Sullivan said the company hopes for approval soon.

The company announced an agreement this week to acquire a majority stake in RARE Infrastructure, an investing firm headquartered in Sydney, Australia. The $205 million deal, expected to close by the end of the year, would make RARE the seventh affiliate company for Legg Mason.

Investors put $2.6 billion into Legg Mason's fixed-income offerings as $1.3 billion was pulled out of equities, the company said.

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"We are well positioned in fixed income even with a potential U.S. rate hike in the near future," Sullivan said. "We believe that demand from investors will remain strong."

A change in New York City's tax code gave Legg a one-time, noncash tax benefit of $18 million, which drove much of the quarterly profit, wrote Wells Fargo senior analyst Christopher Harris in a research note.

"But still a good quarter overall given how challenging the period was for the industry generally," he said.

Analysts were optimistic about the RARE acquisition and said it would be interesting to watch how Legg performs if the Federal Reserve raises interest rates this year given that about half of Legg Mason's assets under management are in fixed income.

"They've been hurt because people are worried when the Fed starts raising rates what's going to happen," said Erik Oja, an equity analyst at S&P Capital IQ. But he said investors "need to have fixed income exposure no matter what."

Legg Mason shares closed Friday at $49.34, up about 1 percent.

Oja said the stock rose "more on relief that it could have been worse" for Legg Mason's assets under management and expenses. Operating expenses were $584.1 million in the quarter, up 2 percent from the same time last year.

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