Funds News

PREVIEW-Dec. quarter may be worst-ever for asset managers

 BOSTON, Jan 20 (Reuters) - Plunging asset values and huge
investor withdrawals from funds likely made the fourth quarter
the worst-ever quarter for U.S. asset-managers' earnings, and
renewed market turmoil in early 2009 signals more pain ahead.
 Profit likely tumbled for most companies in the industry as
they suffered hits to their core business and incurred non-core
and one-time charges. Some, such as Janus Capital Group Inc
JNS.N, could even post a loss, its first in five years.
 "There has been a pretty significant earnings compression
across the board, regardless of mix or positioning," said
Michael Kim, an analyst at Sandler O'Neill and Partners, who
forecast earnings on average to be down 60 percent
year-over-year for seven fund companies he researches.
 "The results are going to be pretty bleak and the outlook is
not that much brighter going forward," Kim added.
 BlackRock Inc BLK.N, the largest publicly traded U.S.
asset manager, kicks off the sector's earnings season when it
reports fourth-quarter results on Wednesday.
 Over the next two weeks, a string of companies, including
AllianceBernstein Holding LP AB.N, Janus, Legg Mason Inc
LM.N, Franklin Resources Inc BEN.N, T. Rowe Price Group Inc
TROW.O, Invesco Ltd IVZ.N, Federated Investors Inc FII.N
and Affiliated Managers Group Inc AMG.N, will report
 Some of the bigger companies have already signaled what to
 Earlier this month, AllianceBernstein, Franklin and Invesco
reported preliminary estimates of assets under management that
showed assets fell between 21.7 percent and 12.8 percent in the
quarter to Dec. 31. Money managers charge fees as a percentage
of assets they manage for clients.
 And State Street Corp, the world's largest money manager for
institutions, reported on Tuesday that unrealized investment
portfolio and commercial paper losses nearly doubled to $10
billion in the fourth quarter and net income slid 71 percent.
 Fears of heavy losses at banks and a global recession after
investment bank Lehman Brothers Holdings Inc LEHMQ.PK went
bankrupt in September caused global markets to convulse and
panicky investors to flee from mutual funds.
 The Standard & Poor's 500 index .SPX sank 23 percent in
the fourth quarter. Investors pulled out $208 billion from stock
and bond funds in the quarter, according to research firm Lipper
Inc. The S&P index is off another 10.9 percent in 2009.
 "With virtually all equity markets and asset classes posting
dismal returns and outflows at high levels, we believe Q4 is
likely to go down in the record books as the sharpest
one-quarter decline in operating earnings for most asset
managers," Keefe, Bruyette & Woods (KBW) said in a report.
 One-time items and charges could also affect earnings.
 Several companies, including BlackRock and Franklin, have
written down values of seed capital investments -- companies
putting their own money into new mutual funds and hedge funds --
in prior quarters, and expectations are that some of the firms
could book new losses on them in the fourth quarter.
 Companies may also have to take charges for the massive
layoffs announced in the fourth quarter. The funds industry has
announced cuts of about 4,500 jobs so far in order to cope with
the lower asset levels.
 Some may have to put up more capital to back ailing
money-market funds that made riskier investments. The funds have
been hurt by the declining values of holdings in asset-backed
commercial paper due to the credit crisis and have been forced
to step in and shield clients from losses.
 Legg Mason has said it expects to take a charge of $632.5
million, or $4.48 a share, in the quarter ended in December for
bailing out its money-market funds.
 Janus could also take a fresh charge for supporting some of
its money-market funds a year ago. Kim of Sandler O'Neill said
the charge would contribute to a quarterly loss of 4 cents a
share he estimates for Janus.
 Shares of asset managers, in some cases, are down as much as
three-fourths over the past year but they are not viewed as
compelling buys for near-term investors.
 "Given the volatility and uncertainty, we think there's no
need to chase the stocks," KBW said.
 But some investors had a more favorable view of the sector.
 "We still like the asset management group because they are
not getting any bailouts from the government. They are largely
self-financed, with strong balance sheets and will be early
participants in any market rally," said John Carey, manager of
the Pioneer Fund, which owns Franklin and T. Rowe shares.
  Companies      Q4 estimates,(vs Q3)       P/E  share move
              (Dec qtr, cents per shr)         (1-yr, %)
Alliance            19  (73)             5.24   -71.37
BlackRock          102 (162)            14.78   -48.66
Federated           51  (56)             8.55   -58.57
Franklin            85 (130)             8.24   -44.32
Invesco             17  (33)             8.52   -55.52
Janus                2  (16)             6.00   -76.82
Legg               -74 (-399)            0.00   -74.90   
T. Rowe             26  (56)            12.23   -43.50