Legg Mason shares slump on mounting worries

BOSTON (Reuters) - The shares of U.S. asset manager Legg Mason Inc (LM.N) fell 5.3 percent on Tuesday as investors worried about deterioration in its money market funds business and poor performance at its stock funds.

The shares of the second-largest U.S. money manager closed down $2.32 at $41.25 after being down as much as 9 percent earlier and hitting a five-year low.

Legg said late on Monday it had pledged another $240 million in capital to support investors from losses in three of its money market funds whose bets in risky asset-backed securities was hurt by fresh market turmoil in June.

The company said it would take a charge of $154.5 million, or $1.09 a share, in the quarter ended June 30 for the several rounds of support it has lent to its money funds.

So far, Legg Mason has pledged $2.1 billion in support to its money market funds, put up collateral of $1.1 billion and taken charges of $468 million after taxes and other adjustments.

Brokers cut their price targets on Legg stock and ratings agencies moved closer to cutting their ratings on Legg's debt after the announcement of the support to the money funds.

"It has certainly been a perfect storm for Legg Mason," Ian Lapey, a portfolio manager at Third Avenue Management, which was the eighth biggest institutional shareholder of Legg as of end-March, told Reuters on Friday before the company took the latest round of charges.

"Because not only did several of their managers have bad performance at the same time, but also something that really caught us by surprise was the money market business which really isn't that significant a business for them, but they've had to raise capital to support its money market funds. That's been very disappointing for shareholders," Lapey said.

Legg's stock funds have been under pressure this year, including the Legg Mason Value Trust managed by star stock picker Bill Miller which suffered due to declines in some of its financial and technology holdings.

Miller's fund was down 11.07 percent in the quarter ended June 30 against the S&P 500's negative 2.70 percent return, according to data from Lipper. The fund is down 28.60 percent since the start of the year compared with the S&P index's 11.90 percent negative return.

(Reporting by Muralikumar Anantharaman; Editing by Andre Grenon)