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Legg CEO gets helm as seas are rising

The Baltimore Sun

New Legg Mason CEO Mark R. Fetting can't reject that job to be with his family across the country, as the last heir apparent to "Chip" Mason did. He's a native, and the family lives here. And he probably won't sell the huge money-management company, either.

Which leaves him with one daunting option: He has to run the place.

As today's quarterly earnings report should make clear, Fetting takes the helm at possibly the most challenging time ever for the company. One of the world's premier financial firms will continue to be run by a Baltimorean, which is good for a region that depends on its payroll and charity. But the best outcome for both Baltimore and Legg shareholders will be for the company to rise from its slump, and that largely depends on factors beyond the ability of Fetting or any other person to control in the short term.

Fetting's recent work has involved melding Legg Mason's mutual funds with ones that Legg acquired from Citigroup in 2005. This required analysis of asset pools, expenses and money managers' track records. All the facts were on his computer; all the personalities returned his phone calls.

Success in the new job will depend on Ben S. Bernanke, the Chinese central bank and the Case-Shiller home price index. And Fetting can't give Bill Miller, Legg Mason's fallen star mutual fund manager, his mojo back any more than he can will home prices higher.

"Market cycles are not in a CEO's control," Fetting said on the phone yesterday. "Having said that, you must be savvy about managing through those cycles. ... We have accumulated experience that's quite significant and actually take pride in navigating through these things successfully, and clients really appreciate it when you do that."

Lately, however, the clients are restless. And so are the shareholders.

Legg's stock has fallen by nearly half from its high of $136 a year ago. That's not the worst swoon ever; the stock fell by nearly two-thirds in the mid-1980s. But the company is a hundred times bigger, a hundred times more exposed to the world economy and a hundred times harder to steer from port to starboard. The firm that began as a regional stockbroker is now one of the biggest money managers in the world.

Miller, the skipper of the famous Legg Mason Value Trust, which beat Standard & Poor's index of 500 big stocks for 15 years in a row, stumbled recently by buying housing and home-finance stocks and avoiding stocks in oil and other basic materials.

He underestimated the severity of the housing slump and discounted the ability of developing nations to keep growing and vacuuming up commodity supplies.

So far this year Value Trust is again doing worse than the S&P; 500. And Miller isn't the only high-profile Legg fund manager who's doing poorly. Clients are bailing out of Legg stock funds, although Fetting notes bright spots such as the company's Brandywine and Batterymarch offerings, which have done well overseas.

Analysts expect more news today on Legg's exposure to structured investment vehicles.

Whenever a big, public company stumbles, the possibility emerges that the problem will be solved through a buyout. Baltimore remembers the painful loss of Maryland National Bank, USF&G; and other financial anchors that got sold off after they nose-dived in the early 1990s.

Their difficulties were far more severe than Legg's, and Legg's $10 billion market capitalization limits the number of potential acquirers. Still, it's good to have a guy in charge who says, as Fetting did yesterday, that "the notion of Legg Mason being a vital member and a dependable member of the Baltimore community is absolutely intact."

But he still needs to perform for his other constituencies, the shareholders and money-management clients. Wall Street is agitating for action.

"We ... believe changes are necessary" at Legg Mason Capital Management, the company's core money-running operation, wrote Wachovia Capital Markets analyst Douglas Sipkin in a report Monday. "The decision to double the size of the Value Trust has proved quite costly to the performance of [the fund] and the broader reputation of Legg Mason funds."

Changing Legg Mason Capital will mean changing Bill Miller, who may prove just as resistant as the other mammoth, macroeconomic forces that Fetting faces. As chief of Legg Mason Capital, Miller has enjoyed virtual autonomy under "Chip" Mason.

The task at hand surely requires skill and sagacity. But luck and an economic turnaround might help even more.

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