Is Legg Mason Suffering Citi Indigestion?

Is Legg Mason having trouble integrating Citigroup's funds? Shares of Legg Mason have fallen 15 percent since the firm announced earnings on May 10 that fell far short of analyst estimates.

Can Legg Mason pull it off? That’s what fickle Wall Street investors are wondering lately about the firm’s blockbuster asset swap deal with Citigroup, in which Legg exchanged its brokerage unit for Citi’s asset management business. The deal was finalized in December and doubled Legg’s assets under management.

If all goes according to plan, Baltimore-based Legg Mason will emerge as the world’s fifth largest asset manager. But some are wondering if Legg isn’t having trouble integrating Citigroup’s funds with its own, or at least, doing so in a cost-effective way. The Washington Times reported on May 30 that shares of Legg Mason have fallen 15 percent since the firm announced earnings on May 10 that fell far short of analyst estimates. Legg Mason reported fourth quarter earnings of $1.03 a share, up 28 percent versus a year ago, but a far cry from analyst expectations of $1.25 per share for the quarter.

Still, the firm’s outgoing CEO, Raymond A. “Chip” Mason, emphasized when the earnings were released that Legg has made “meaningful progress” in the integration process. And analysts say the transaction should pay off over time. Indeed, an asset manager we know (who spoke on the condition that his name not be used) says that Legg is as good an asset manager as any outfit in the world and that this dip may prove a buying opportunity. He says that Citi’s managers will “enhance” Legg’s revenue, and Legg will turn Citi’s asset management group around.

For related stories, see:

Bye, Bye Smith Barney Funds; Welcome Legg Mason http://registeredrep.com/news/legg-mason-rebrand/index.html

New Legg Mason President Marks the End of an Era http://registeredrep.com/news/mason-president-retiring/index.html

Legg Slims Citi Swap Rank http://registeredrep.com/mag/finance_legg_slims_citi/index.html

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