Reuters
July 25, 2008 - 01:50 p.m. EST

BOSTON (Reuters) - Legg Mason Inc (LM.N: Quote, Profile, Research, Stock Buzz) posted a wider-than-expected quarterly loss as investors yanked $18.4 billion from its underperforming funds and the U.S. asset manager took a charge to bail out its money market funds that are stuck with risky securities.

But the No. 2 publicly traded U.S. asset manager's shares rose over 3 percent, outperforming the sector, after it said its money market funds had stabilized, performance at some of its key funds had improved and it had launched a series of plans for growth.

Rival T. Rowe Price Group Inc (TROW.O: Quote, Profile, Research, Stock Buzz), meanwhile, reported a profit that met expectations, and its shares were flat.

Legg Mason's improving funds included the battered Value Trust fund, run by one-time star stock picker Bill Miller,

Legg Chief Executive Mark Fetting said the fund has, in the past two weeks since July 15, outpaced the Standard & Poor's 500 index by 600 basis points as financials have rebounded and energy stocks have declined.

"It's a two-week metric, but it's indicative of a rotation of market leadership," Fetting told Reuters in an interview.

Miller's Value Trust fund, which is heavy on financials and light on energy, is down about 30 percent so far in 2008 and is at the bottom of its category.

Legg reported a net loss of $31.3 million, or 22 cents a share, for its fiscal first quarter ended June 30, compared with net income of $191 million, or $1.32 a share, a year earlier. Analysts on average had expected a loss of 15 cents a share, according to Reuters Estimates.

The company took a charge of $155.4 million, or $1.09 a share, for the quarter related to bailing out money market funds. Legg had already announced the write-downs in June.

Legg had posted a net loss of $255.5 million, or $1.81 a share, for its fiscal fourth quarter ended March 31, which was its first-ever loss, mainly due to a charge it took to support its money market funds.

Fetting told an earnings conference call that the money market funds had not warranted more write-downs since the charges taken in end-June and Legg was working to cut its exposure to risky securities in those funds.

Assets under management, the main driver of revenue and profit at money managers, fell at Legg to $922.8 billion from $950.1 billion at the end of March.

Clients pulled out a net $18.4 billion from Legg's funds in the quarter. Equity and fixed income outflows were about $11 billion each, while its money market products saw inflows of $4 billion.

The equity outflows have been mostly at Miller's Legg Mason Capital Management unit, and some others such as Private Capital Management and ClearBridge Advisors.

T.ROWE

T. Rowe, which is a strong player in the retirement arena, posted flat net income of $162 million for its second quarter. Earnings per share rose to a slightly better than forecast 60 cents a share from 58 cents a year earlier, due to a lower number of shares outstanding.

Its funds reported inflows of $8.1 billion in the quarter, lifting assets under management to $387.7 billion at the end of June from $378.6 billion at the end of March.

Like T. Rowe, Legg is also making a big push in the retirement space by rolling out new target-date funds. It is also enhancing its focus on non-U.S. equities by launching a new unit specializing in global equities in partnership with Brandywine Global Investment, which is part of the Legg Mason stable.

Legg's and T. Rowe's results contrasted with those of other U.S. asset managers, which have largely beaten lowered expectations. Companies that beat expectations include Janus Capital Group Inc (JNS.N: Quote, Profile, Research, Stock Buzz), BlackRock Inc (BLK.N: Quote, Profile, Research, Stock Buzz), Affiliated Managers Group Inc (AMG.N: Quote, Profile, Research, Stock Buzz), AllianceBernstein Holding LP (AB.N: Quote, Profile, Research, Stock Buzz) and Calamos Asset Management Inc (CLMS.O: Quote, Profile, Research, Stock Buzz).

Legg shares were up 3.4 percent at $39.49 in afternoon trading. They are still down about 46 percent so far in 2008.

T. Rowe shares were up 0.3 percent at $56.18.

(Reporting by Muralikumar Anantharaman; Editing by Steve Orlofsky and Gerald E. McCormick)