Fitch cuts Legg Mason on hits from market turmoil

Fitch Ratings on Tuesday downgraded Legg Mason Inc., citing the hits the investment manager has taken in the turbulent financial markets.

Fitch cut Legg Mason's long-term issuer default rating to "A-" from "A," and said the rating outlook remains negative. The rating is still investment grade.

Legg Mason has been rocked by losses stemming from its investments in structured investment vehicles, and earlier this month said it will record charges of more than a half-billion dollars to reflect moves made to shore up several of its money market funds that held the risky securities. The Baltimore-based firm also said it will cut its staff by about 8 percent, or just under 200 jobs, as part of broad-based cost-cutting measures.

The firm reported a worse-than-expected fiscal second-quarter loss in late October. Analysts polled by Thomson Reuters expect losses for both the current quarter and the fiscal year.

Fitch noted the costly efforts to relieve pressure from its money market funds and Legg Mason's declining assets under management, a key measure of an investment firm's health, in the downgrade, saying the company's financial profile has been weakened.

The firm's debt-to-equity ratio shot up to 47 percent at Sept. 30 from 15 percent a year earlier, Fitch said. Fitch noted that the estimate counts mandatorily convertible debt as debt rather than equity.

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The ratings firm praised Legg Mason's recent sale some of its SIV holdings as positive, but said the firm "continues to face performance pressure in the current environment, particularly if equity markets continue to decline."

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A further decline in assets under management, whether through market losses or customers pulling their money out of the firm, could pressure ongoing performance and Legg Mason's ability to pay its debts, Fitch said. That concern is reflected in the negative outlook.

Fitch also downgraded Legg Mason's long-term debt to "A-" from "A."

Legg Mason shares fell 24 cents to $18.18 in afternoon trading.