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Legg Mason's earnings fall 25%


Legg Mason Inc. reported yesterday that profit fell 25.5 percent in its fourth quarter, and its top executive said a freeze on new employees and new branches is in effect because of turbulence in the stock market.

But the company reported record profit and revenue for its fiscal year ended March 31.

Raymond A. "Chip" Mason, Legg Mason's chairman and chief executive, said the company had instituted the hiring freeze two months ago as part of an overall cost-cutting initiative.

"In fact, if the environment would persist ... we would expect them to make cuts and we would give them certain guidelines that they would have to look at," Mason said in a conference call with analysts. "We have certainly looked at what we would need to do in the way of cutting."

James Brinkley, president of Legg Mason Wood Walker Inc., said in an interview yesterday that the expense-tightening does not involve "letting people go."

"We do not have any plans to reduce personnel by termination or layoffs," he said. "That is not in the cards at this point. At this point, we are going to let attrition work for us. Frankly, I am quite positive on the markets and the business improving. We are growing, we are looking to make strategic acquisitions."

The company has halted its branch expansion, but would have done so even if the market hadn't soured, Mason said.

"We have opened about 25 offices in the last 15 to 18 months; it was time to stop ... it was time to calm down," he said in an interview after the conference call.

The Baltimore-based brokerage and asset management company has about 4,700 employees, about 1,780 of them in the Baltimore area. The company also operates 140 brokerage offices throughout the United States.

Legg Mason reported net income of $37.3 million for the three months that ended March 31, down from $50.1 million in the corresponding period a year earlier. The earnings were equivalent to 55 cents per diluted share, compared with 75 cents per diluted share in the 2000 period and 5 cents below the consensus estimate of analysts surveyed by Zacks Investment Research.

Net revenue slipped 10.4 percent to $338.7 million in the quarter, down from $378.2 million a year earlier. Commission income fell 25.8 percent to $85 million as skittish investors shied away from the stock market. Investment banking revenue was off 18.5 percent.

Shares of Legg Mason fell 6.49 percent, or $3.26, to close at $47.

"I think Legg Mason recorded pretty good results in a very difficult market environment," said Bruce Brewington, a financial analyst at Putnam Lovell Securities in San Francisco.

"I thought the quarter was pretty solid."

Fees generated from Legg Mason's investment-advisory business rose 6.3 percent to $166.3 million in the quarter, marking the 44th consecutive quarter that the firm has increased revenue from asset-management activities.

The company is benefiting from building a large asset-management business, which is less vulnerable to swings in the stock market than its brokerage business.

Legg Mason's assets under management jumped 25 percent to $139.9 billion in the year, up from $111.8 billion a year earlier, marking the 39th consecutive quarter that they have increased.

In the last three months, $3 billion has flowed into the company, primarily through Western Asset Management, its institutional fixed-income manager, and Barrett Associates, a New York-based wealth-management firm that it acquired in February.

Mason said the quarter "turned out, truthfully, better than we expected. We did not get quite the deterioration that we thought would have happened."

For the year, profit rose 3.9 percent to a record $156.2 million, or $2.30 per diluted share. Net revenue increased 7.6 percent to a record $1.4 billion from $1.3 billion.

"If this is bad or the downside, we can live with this," Mason said.

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