Miller's Legg Mason unit to cut one-third of jobs

[VelMurugan]

Miller's Legg Mason unit to cut one-third of jobs

Legg Mason Inc plans to cut a third of the jobs at a unit run by value stock picker Bill Miller, the No. 2 US asset manager said on Thursday, as assets at the unit dropped more than 50 percent. Up to 50 of Legg Mason Capital Management's 147 employees will be dismissed in the first job cuts since the founding of the investment unit 26 years ago, affecting mostly administration and technical staff, said Legg Mason spokeswoman Mary Athridge.

No senior investment professional jobs will go. Legg Mason and other fund companies are scrambling to cut costs as investors pulled record amounts of money from stock mutual funds when the financial crisis deepened. The industry generates the bulk of its revenue from fees based on a percentage of assets under management, which have withered.

Legg Mason Capital Management's assets have shrunk to about $28 billion from about $70 billion a year ago, while Miller's flagship Value Trust fund is down 52 percent year to date -- the worst performer in its category, according to data from Lipper Inc, a unit of Thomson Reuters PLC.

"While cutting your employees by a third is a pretty big step, it seems like it was inevitable," said Alan Rambaldini, equity analyst at Morningstar. "They have probably been the worst performing unit at Legg Mason." The job cuts mark a dramatic reversal of fortune for Miller, the only fund manager to beat the Standard & Poor's 500 index for 15 straight years until 2006.

Miller was co-manager when the unit was founded and is now its chairman and chief investment officer. "Given the unprecedented market environment and its impact on our assets under management, Legg Mason Capital Management made the very difficult decision to reduce its staff by one-third," Legg said in a statement. Legg's shares were up 23 percent at $20.82 on the New York Stock Exchange, following the previous day's 30 percent surge when its quarterly results beat expectations.

Legg Mason reported its third straight quarterly loss on Wednesday but said the pace of withdrawals from stock mutual funds had slowed. Mark Fetting, chief executive of the Baltimore fund manager, told Reuters the parent company may also cut jobs and is seeking $120 million in expense savings.

Several analysts revised their outlook on Legg's stock price. Wachovia Corp's brokerage analyst upgraded his rating on Legg Mason's shares to outperform on Thursday from market perform, while Deutsche Bank cut its price target to $22 from $47 and Credit Suisse cut its price target to $24 from $40.

The cuts at Miller's unit follow layoffs at rivals including Janus Capital Group Inc, which said last week it was slashing 9 percent of its work force, and AllianceBernstein Holding LP, which is gearing up for its biggest-ever job cuts.