October 28, 2008 / 8:23 PM / 10 years ago

WRAPUP 2-Fidelity reviews staff, Legg shares dip

* Legg shares hit 11-year low ahead of Wednesday’s results

* Fidelity to review staff, report sees 4,000 jobs cut

* Schroders Q3 profit drops, outflows accelerate

* Waddell Q3 misses estimates, stock falls (Recasts, adds Schroders Plc results, Legg dividend)

By Muralikumar Anantharaman

BOSTON, Oct 28 (Reuters) - Financial markets turmoil took a toll on asset managers on Tuesday as Fidelity Investments said it plans to review global staffing levels, Britain’s Schroders Plc said it will slash jobs, and Legg Mason Inc (LM.N) shares sank to 11-year lows.

Smaller fund manager Waddell & Reed Financial Inc (WDR.N) said third-quarter earnings missed estimates, and forecast a drop in assets in the current quarter, sending its stock down as much as 11.4 percent to their lowest in a decade. [ID:nBNG148859]. The stock closed down 4.6 percent on Tuesday.

Schroders (SDR.L) will cut a small number of jobs as it cuts costs after third-quarter pretax profit fell to 78 million pounds ($121.5 million) from 98.1 million a year earlier. Investors withdrew 4.1 billion pounds from its funds. [ID:nLS535529].

“The industry is in a state of flux. It seems like a lot of these companies are anticipating a few years where asset levels are going to be quite depressed, and they are right-sizing for the environment,” said Alan Rambaldini, equity analyst at Morningstar.

Asset managers have held up better than other financial sector players such as banks because they do not commit their own capital. The industry generates the bulk of its revenue on fee income based on a percentage of assets under management.

But assets have withered in recent weeks during the financial crisis. Investors pulled out a record $104.4 billion from U.S. mutual funds in September alone, according to research firm Lipper Inc, a unit of Thomson Reuters Corp TRIL.L(TRI.TO). [ID:nN17486931].

Dismal numbers are also widely expected this month, given the slide in stock prices.


Fidelity, the world’s biggest mutual fund company, has seen assets and performance tumble at its main funds. Its flagship Magellan fund has shed about 54 percent in 2008 and its assets have dwindled to $28.3 billion at Sept. 30 from $44.5 billion in January.

Privately held Fidelity said it was reviewing costs and staffing after an industry newsletter reported on Monday that as many as 4,000 jobs, or about 9 percent of its work force, could be slashed. [ID:nN28364658].

The newsletter, Ignites, said Fidelity was preparing to cut up to 4,000 jobs in two rounds, starting this quarter.

Fidelity spokeswoman Anne Crowley called the report “speculation,” but did not explicitly deny it.

“Our business leaders are currently evaluating all of their operations — company by company, division by division — to make sure they are correctly positioned for the future,” she said in an e-mail.

Janus Capital Group Inc JNS.N said last week it was slashing 115 jobs, or 9 percent of its work force, and AllianceBernstein Holding LP (AB.N) announced plans to make an unspecified number of cuts, the “biggest in its 40-year history.”

The cuts are in stark contrast to an industry hiring binge between 2005 and 2007, when firms added more than 21,000 workers, reaching a record 168,000 employees, according to the Investment Company Institute, a trade group.

Legg Mason shares fell as much as 20 percent to $11.09 on the New York Stock Exchange, their lowest since April 1997, as investors worried the asset manager would have to raise more capital to support its ailing money-market funds.

The shares cut their losses, ending down 6.6 percent at $12.98 as the broad market rallied. [ID:nN28392724]. Legg also set a regular quarterly dividend of 24 cents per share.

Legg will report fiscal second-quarter results on Wednesday. It has put up $1.73 billion over the past year to support its money-market funds that have invested in risky asset-backed commercial paper issued by SIVs, which are off-balance sheet vehicles.

“People are worried about further deterioration in SIV (structured investment vehicles) assets and that Legg might need to take additional charges and then have to raise capital,” said Roger Smith, an analyst at Fox-Pitt Kelton.

Outflows are also expected from prominent Legg funds, such as the $7.6 billion Value Trust managed by Bill Miller. The fund’s returns are down 55.6 percent this year through Monday’s close due to big bets on financials, whose market values have tumbled. (Additional reporting by Anurag Kotoky in Bangalore and James Molony in London, editing by Jason Szep and Jeffrey Benkoe)

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