Legg Maintains 'The Buck'

Bloomberg-

Legg Mason Inc. pumped $1.12 billion into two non-U.S. cash funds to prevent losses, the biggest bailout by a money manager tied to asset-backed debt sold by structured investment vehicles.

The move, along with an earlier cash infusion, will reduce earnings per share by 15 cents in the quarter ending Dec. 31, the Baltimore-based company said today in a statement. Legg Mason has provided $1.47 billion to support money funds and other cash- management portfolios since November.

``This action is consistent with our ongoing efforts to reduce the ABCP exposure in our liquidity funds in light of current stresses in the credit markets,'' Raymond ``Chip'' Mason, Legg Mason's chief executive officer, said today in a statement, referring to asset-backed commercial paper.

To raise the capital, Legg Mason entered a total-return swap with Barclays Plc, which purchased SIV securities from Legg Mason.

SIVs now account for 3.2 percent of Legg Mason's $164 billion in cash funds, compared with 6.4 percent on Oct. 31. Some 1.1 percent of Legg Mason's cash-fund assets are invested in bank-sponsored SIVs, which have announced their support of those securities, Legg Mason said.

PRnewswire-

In a Dublin-domiciled fund, Legg Mason reduced the fund's SIV holdings through (1) a transaction whereby the fund received cash of $890 million for certain SIV securities that were transferred to a major banking institution (the "Bank") in connection with a total return swap between the Bank and the Company, and (2) Legg Mason purchasing for cash an aggregate of $132 million in principal amount of SIV securities from the fund. All of the securities in question have scheduled maturities ranging from January to November 2008. Under the total return swap, Legg Mason is responsible for any loss incurred by the Bank below its purchase price through November 2008 plus a return to the Bank (net of any interest received on the securities) and would benefit from any gain realized by the Bank above its purchase price. Legg Mason has provided $83 million to collateralize the swap, which may be increased or decreased based on changes in the market value of the underlying instruments or upon any maturity of, or default under, any of the underlying instruments.

Raymond A. "Chip" Mason, the company's chairman, president and chief executive officer, commented, "This action is consistent with our ongoing efforts to reduce the ABCP exposure in our liquidity funds in light of current stresses in the credit markets. The actions we are announcing today have meaningfully reduced one fund's ABCP holdings and essentially eliminated the other fund's holdings. These actions are further evidence of our continuing support of our liquidity products in light of current unprecedented market conditions. We will continue to monitor our liquidity funds carefully and may elect to take additional action in the future if we deem it appropriate."