Legg Mason (LM) reported its first quarterly loss ever, "primarily driven by non-cash charges to support money market funds." The "previously announced support for money market funds" added a $291 million after tax and adjustment loss, and total "net money market fund support" charges were $472 million in the quarter and $508 million over the past two quarters. The company also announced steps to raise capital "to provide additional support for the money funds, if needed," said President & CEO Mark Fetting on today's earnings conference call.
Fetting noted improving conditions of late, saying that "various Fed actions have effectively halted the contagion," in the credit markets. The advisor has engaged in three types of support for its money funds to date -- letters of credit (LOCs), total return swaps, and purchases in securities. Legg Mason, which runs the Citi and Western funds, said it has reduced its structured investment vehicle-related (SIV) holdings from $4.5 billion, or 6% of $167 billion, in October to $2.9 billion, or below 2% of $176 billion, in March. One-quarter of the remaining SIVs are in bank-sponsored programs.
CFO C.J. Daley said, "We have taken deliberate and thoughtful steps to support our money fund business." He added that the support was in the best interests of both money fund and Legg Mason shareholders. "Both interests are aligned," he said on the call. Legg cited improvements in the credit and SIV markets of late, saying the "mark-to-market" loss estimates had decreased in April. "It was a good credit month," said the company in response to an analyst question.
Legg Mason's Western Asset subsidiary has seen assets increase by 10.7%, or $10.8 billion, in the first quarter, to $111 billion, according to Crane Data's recently released quarterly, Money Fund Intelligence Distribution Survey. (The company includes "offshore" and international money fund assets in its $176 billion figure.)
To date, at least 13 advisors have purchased or sought guarantees for over $30 billion in securities, at a "mark-to-market" cost of over $3 billion, in order to prevent their money market mutual funds from suffering losses and potentially "breaking-the-buck". While there undoubtedly will be more more disclosures, the threat that mortgage-related debt poses to money market funds is receding as the final portions of SIV debt are paid in full, purchased or protected.
