Legg Mason's business booms while rivals crash


NEW YORK -- At a time when many firms on Wall Street are suffering, Baltimore-based Legg Mason Inc. expects its fiscal year to close at the end of March with record or near-record earnings.

Last year Legg Mason also was the exception to generally depressed industry conditions, generating record revenues and net earnings and coming within 6 cents of its record for earnings per share of $1.38, registered in 1987, when Wall Street was booming.

Working to Legg Mason's benefit has been its ability to dodge the more destructive practices of many brokerage firms, such as 'junk' bonds, investment partnerships and bridge loans, while adding on a new, related, business -- money management -- that is producing large, and possibly sustainable, profits.

During the first three-quarters of its fiscal year, Legg Mason earned $9.2 million. All 334 member firms of the New York Stock Exchange combined earned slightly less than $23 million during that period.

Industry figures for the last quarter of 1990 have not been released, but it was a period of depressed activity and will likely further underscore the contrast between Legg Mason's prosperity and the overall poor business conditions.

"You're looking at two not very good years in the market, and we seem to be able to earn pretty consistently, which means in a better market environment we should do even better," said the company's chief executive officer, Raymond "Chip" Mason.

Legg Mason isn't the only publicly traded brokerage to prosper in a time of poor results. Perrin Long, an analyst with Lipper Analytical Services, believes that the past year has been good for A. G. Edwards & Sons in Missouri and Raymond, James & Associates in Florida, both firms that, like Legg Mason, are regional and focus on retail investors.

That, Mr. Long said, suggests Legg Mason's prosperity may have as much to do with its fortuitous position in the industry as it does astute management.

Still, many other firms with a retail focus registered losses last year, including Connecticut-based Advest Securities, North Carolina's Interstate Securities and New York's Paine Webber, as well as major New York-based investment banks with large retail operations, such as Shearson Lehman Bros. and Prudential Securities.

Legg Mason hasn't been immune to mistakes. Its $34 million 1987 acquisition of Howard Weil Financial in New Orleans has been profitable only in the past year, and Mr. Mason said he remains unhappy with the results.

Because of dilution associated with the acquisition, which was paid for in Legg Mason stock, earnings per share has yet to exceed past peaks even as overall income has grown.

Since then, however, Mr. Mason said his firm appears to have built a more consistent, core earnings base of $1 to $1.20 a share annually regardless of market conditions.

The firm continues to add brokers and open new offices, up from 75 to 78 in the past year, but the critical element in its stronger bottom line has been a burgeoning money management business that encompasses products such as mutual funds.

Assets under management have ballooned from $300 million, largely in a money-market fund, in 1982 to in excess of $10 billion currently. The largest portion is in Western Asset Management Co., a California-based fixed-income money management firm acquired in 1986.

Legg Mason receives fees based on a percentage of the money under management; hence revenues from money management have grown along with assets.

Because money management has large economies of scale, its impact on Legg Mason's profits has grown even quicker, to more than 50 percent last year and 60 percent this year.

"The underlying assets allow us to have continuing earnings regardless of what the market is doing," Mr. Mason said.

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