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Legg Mason Misses Views

Investors continue to pull money out of three of the firm's equity managers
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Legg Mason

(LM) -

posted a 24% boost in second-quarter earnings Wednesday but still missed Wall Street's target as investors continued to pull money out of its underperforming equity funds.

The Baltimore-based company earned $177.5 million, or $1.23 a share, up from $143.7 million, or $1 a share, a year ago. Revenue climbed 14% to $1.17 billion.

Analysts polled by Thomson Financial were expecting the company to earn $1.29 a share on revenue of $1.2 billion.

Total assets under management increased 13% over the same to a record $1.012 trillion, but were up just 1.9% from the end of June. The company said in its press release that most of the increase was attributable to market appreciation, as net new money from clients totalled just $300 million.

Despite a rise in major market benchmarks, assets in Legg Mason's equity-related investment vehicles actually fell by 2.4% during the quarter.

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"The second quarter of fiscal 2008 was demanding, with turbulence throughout most of the quarter, particularly in the fixed income markets, and, to a lesser extent, in the equity markets," Raymond A. "Chip" Mason, chairman and CEO, said. "Our flows in long-term fixed income remained strong, but our equity flows continued to be difficult. Total flows of several hundred million are disappointing, to say the least."

Mason said that three of the company's largest equity managers continued to struggle with outflows caused primarily by recent underperformance. Legg Mason swapped asset management and brokerage operations with


(C) -

in 2005.

"Having these managers fall below their long-term performance norms, all at the same time, has been challenging for us," he said. "Some of our recent equity outflows, though, reflect the significant change in our distribution profile because of the Citigroup transaction, as we move beyond our traditional channels and towards full open architecture."

The company repurchased 1.1 million shares of common stock during the quarter, at an aggregate cost of about $94 million.

Shares of Legg Mason were sliding $2.07, or 2.5%, to $81.38 in recent trading