Shares of Baltimore's Legg Mason Inc. suffered the largest one-day percentage drop in its history as a public company yesterday and plunged to their lowest price in almost 10 years.
Legg's shares fell nearly 25 percent, or $6.25, to $19 in a broad market sell-off amid continuing fears over the credit markets, weakening consumer spending and the economy as a whole. The Dow Jones industrial average closed below 9,000 for the first time since 2003. The Wall Street turmoil also punished stocks of other Baltimore-area companies and financial institutions.
Legg's stock also faced additional pressure because of its recent poor financial performance and short-sellers returning to the market yesterday, analysts said. Legg and other asset managers are seeing spooked investors pull record amounts of money from stock and bond mutual funds and shift them to the safety of government-insured bank deposits.
For Legg, yesterday's performance was another disappointing turn in what has been a rocky year. Its key mutual funds are suffering dismal returns. Its profit has been weighed down by costs of shoring up some of its money market funds invested in soured mortgage-backed securities. And this week, Moody's Investors Service downgraded its senior debt by one notch.
Moreover, Legg, one of the region's largest employers, has been fighting speculation that it could be a takeover target as its stock falls. It has lost nearly 74 percent since the beginning of the year.
The last time Legg saw its stock price this low was March 3, 1999, when shares closed at $18.67, according to Bloomberg News.
Legg spokeswoman Mary Athridge declined to comment yesterday.
Legg's competitors, such as Baltimore's T. Rowe Price Group, also saw their stocks plummet yesterday as the three-week ban on short-selling expired midnight Wednesday. Short-selling involves borrowing a company's shares, selling them, and then buying them back when the stock falls and returning them to the lender. The practice allows investors to profit from the decline in a stock's value. Price and Legg were on the short list ban.
Some also attributed yesterday's decline to new analyst predictions of weaker quarterly performance for several money managers for the three months ended Sept. 30. Legg was not one of them but it got caught in the crossfire of Wall Street, where financial markets suffered their seventh straight day of declines.
Legg is "getting hurt twice as much" because of concerns related to its performance and money market funds, said Morningstar analyst Alan Rambaldini.
Legg clients have been taking their investments elsewhere in the past year. In the most recent quarter ended June 30, investors pulled $18.4 billion from Legg funds.
Overall, investors took out a record $52.1 billion from U.S.-managed stock and bond mutual funds during the past week alone, according to data complied by TrimTabs Investment Research. The pullout followed $72.3 billion in outflows in September, the most in the single month. Citing U.S. Federal Reserve data, TrimTabs said investors deposited $185.5 billion into bank accounts last month through Sept. 22.
"Certainly with asset managers like Legg Mason and others, there's been more speculation that the fund-flow story will be increasingly more challenged with large outflows coming," said Daniel T. Fannon, an analyst at Jefferies & Co., in explaining Legg's stock decline. "Given the track record of performance at Legg Mason, there's concern there will be significant outflows."
Legg, which went public in 1983 and has 4,220 employees, manages assets of $923 billion. It has about 1,000 workers in Baltimore.
But performance woes at Legg and other asset management firms amid the financial turmoil have stirred recent buyout talks.
Legg Chief Executive Officer Mark R. Fetting has repeatedly rejected the idea of selling any of Legg's businesses.
Bloomberg News and the Associated Press contributed to this article.