|
Legg Mason Inc.
100
Light Street
Baltimore, Maryland 21202
(410)
539-0000
www.leggmason.com
Investment Banking -
Category Directory
Sales
$2
billion
Business Description
We are a holding company that, through our subsidiaries, is principally
engaged in providing the following services to individuals, institutions,
corporations, governments and government agencies:
• asset management;
• securities brokerage;
• investment banking; and
• other related financial services.
We currently operate through three business segments: Asset Management,
Private Client and Capital Markets; however, in reporting our results, we
include a fourth segment — Corporate.
Capital Markets Business Segment
Our Capital Markets business segment is conducted primarily through Legg
Mason Wood Walker, however, it includes the operations of another
subsidiary, Howard Weil Incorporated. This segment consists of our:
• equity and fixed income institutional sales and trading;
• investment banking;
• syndicate;
• structured products; and
• research.
Institutional Sales
In our institutional sales business, we execute equity and fixed income
securities transactions for institutional investors such as banks, mutual
funds, insurance companies and pension and profit-sharing plans. These
investors typically purchase and sell securities in large quantities that
require special marketing and trading expertise. We believe that we receive
a significant portion of our institutional brokerage commissions as a
consequence of providing research opinions and services regarding specific
corporations and industries and other matters affecting the securities
markets. See “Research.”
We execute transactions for institutional investors as a broker or as a
principal. We generally offer discounts from our commission schedule to our
institutional customers. The size of these discounts varies with the size of
particular transactions and other factors. For the fiscal years ended March
31, 2004, 2003 and 2002, the revenues we derived from securities
transactions for institutional investors in our Capital Markets business
constituted approximately 35%, 36% and 34%, respectively, of our total
revenues from securities transactions and 11%, 13% and 12%, respectively, of
our net revenues.
Trading
We are a market maker in certain equity securities that are traded on the
Nasdaq Stock Market. As of March 31, 2004, we made markets in equity
securities of approximately 375 corporations, including corporations for
which we have acted as a managing or co-managing underwriter of securities
offerings. We also are an active market maker and distributor of municipal
bonds, particularly bonds issued by municipalities located in the
Mid-Atlantic and Southern regions.
Our trading activities are also conducted with other dealers, and with
institutional and individual customers of our branch office system. We
designate an amount from trading activities representing a commission to the
Private Client business segment when the transaction involves a retail
client. In trading equity and debt securities, we maintain positions in the
securities to service our customers and accordingly expose our capital to
the risk of fluctuations in market value. We realize profits and losses from
market fluctuations in these securities, although we generally seek to avoid
substantial market risk, and may engage in hedging transactions to reduce
risk. Trading profits (or losses) depend upon the skills of the employees
engaged in trading activities, the amount of capital allocated to positions
in securities, the interest rate environment and the general level of
activity and trend of prices in the securities markets.
Among our traders, 56 are involved in trading corporate equity and debt
securities, 19 are involved in trading municipal securities, six are
involved in trading mortgage-backed securities, and seven are involved in
trading government securities.
Investment Banking
For the fiscal years ended March 31, 2004, 2003 and 2002, the revenues we
derived from investment banking activities constituted approximately 8%, 7%
and 7%, respectively, of our net revenues. At March 31, 2004, we had 109
professionals engaged in investment banking activities, including 78 in
corporate finance and 31 in municipal finance. Within our corporate finance
investment banking group, our professionals are generally engaged in
covering the following industries/practice areas: real estate, life
sciences, telecommunications, information technology, financial
institutions, education, transportation, strategic advisory and private
placements.
Our investment banking activities include public offerings and private
placements of debt and equity securities and the provision of financial
advisory services principally in connection with debt and equity private
placements and with respect to merger and acquisition transactions. Within
our corporate investment banking business, the Structured Finance Group
provides investment banking services to arrange and finance net lease
financing transactions, other lease financings and other securitizations or
similar financing transactions. Our investment banking clients include
private and public companies, municipalities and other non-profit
organizations.
We participate as an underwriter in public offerings of corporate debt and
equity issues and municipal securities. We also manage or co-manage some of
these offerings
Underwriting involves both economic and litigation risks. An underwriter may
incur losses if it is unable to resell the securities it is committed to
purchase, or if it is forced to liquidate its commitments at less than the
agreed purchase price. In addition, an underwriter is subject to substantial
potential liability for material misstatements or omissions in prospectuses
and other communications with respect to underwritten offerings. See “Item
3. Legal Proceedings.” Furthermore, because underwriting commitments require
a charge against net capital, we could find it necessary to limit our
underwriting participations to remain in compliance with regulatory net
capital requirements. See “Net Capital Requirements.”
Syndicate
Our corporate syndicate departments perform underwriting and marketing for
initial public offerings of debt and equity (common and preferred), public
offerings of companies whose securities are already traded and public
offerings of closed-end funds.
Structured Products
We include two distinct businesses under this group within our Capital
Markets segment. Legg Mason Real Estate Investors is in the business of
sponsoring and managing funds that make and invest in real estate loans and
other real estate backed securities. LMRES engages in the discretionary and
non-discretionary management of commercial real estate-related assets
primarily for institutional clients. In addition, our merchant banking
operation, which had been included within our Capital Markets businesses,
was sold in December 2003.
Research
Legg Mason Wood Walker employs 51 equity analysts who develop investment
recommendations and market information with respect to companies and
industries. Legg Mason Wood Walker’s research has focused on the
identification of securities of financially sound, well-managed companies
that appear to be undervalued in relation to their long-term earning power
or the value of their underlying assets. Our equity research also focuses on
companies in certain business sectors, including:
• real estate investment trust;
• industrial;
• biotechnology;
• consumer services;
• financial services, including commercial banking;
• technology; and
• telecommunications.
These research services are supplemented by research services purchased from
outside firms.
Our clients do not pay for research services directly; however, we believe
that our research activities are important in attracting and retaining
brokerage clients.
Corporate Segment
Our Corporate segment consists primarily of unallocated corporate revenues
and expenses. We previously included these revenues and expenses in our
Other segment that consisted primarily of the results of the mortgage
banking and servicing operations of LMRES, which was sold on September 30,
2003. The real estate asset management business of LMRES, which we retained,
is now included in our Capital Markets business segment.
Securities Brokerage Operations
Our securities brokerage operations personnel are responsible for the
processing of securities transactions; receipt, identification and delivery
of funds and securities; internal financial controls; office services;
custody of customers’ securities; and the handling of margin accounts. At
March 31, 2004, we had approximately 260 full-time employees performing
these functions.
There is considerable fluctuation during any year and from year to year in
the volume of transactions we must process. We record transactions and post
our books on a daily basis. Our operations personnel monitor day-to-day
operations to determine compliance with applicable laws, rules and
regulations. Any failure to keep current and accurate books and records can
subject Legg Mason Wood Walker to disciplinary action by governmental and
self-regulatory authorities, as well as to claims by its clients.
Legg Mason Wood Walker executes and clears securities transactions as a
member of the NYSE and various regional exchanges, and is a participant in
both The Depository Trust Company and National Securities Clearing
Corporation. Legg Mason Wood Walker also provides clearing services to
affiliated and unaffiliated broker-dealers.
We believe that our internal controls and safeguards are adequate, although
fraud and misconduct by customers and employees and the possibility of theft
of securities are risks inherent in the financial services industry. As
required by the NYSE and certain other authorities, we carry a fidelity bond
covering loss, theft, embezzlement or misplacement of securities and forgery
of checks and drafts.
Asset
Management Business Segment
Our Asset Management business segment provides investment advisory services
to institutional and individual clients and company-sponsored investment
funds. Operating in offices primarily located in the United States, and also
located in the United Kingdom, Canada and Singapore, our asset management
subsidiaries provide a broad array of investment management products and
services. Our investment products include proprietary mutual funds ranging
from money market and fixed income funds to equity funds managed in a wide
variety of investing styles, domestic and offshore funds and certain
unregistered, alternative investment products.
In our asset management business, our subsidiaries primarily earn revenues
by charging fees for managing the investment assets of clients. Fees are
typically calculated as a percentage of the value of assets under management
and vary with the type of account managed, the asset manager and the type of
client. Our asset management subsidiaries also may earn performance fees
from certain accounts if the investment performance of the assets in the
account exceeds a specified benchmark during a measurement period.
Accordingly, the fee income of each of our asset management subsidiaries
will typically increase or decrease as its average assets under management
increases or decreases. Increases in assets under management generally
result from appreciation in the value of client assets and from inflows of
additional assets from new and existing clients. Conversely, decreases in
assets under management generally result from asset value depreciation and
from client redemptions and withdrawals.
Mutual Funds
In our Mutual Funds division, we sponsor domestic and international equity,
fixed income and money market mutual funds, closed-end funds and other
proprietary funds. As of March 31, 2004 and 2003 our Mutual Funds division
managed assets with value of $64.3 billion and $35.9 billion, respectively.
Approximately 47% of the growth in assets managed by this division during
the fiscal year resulted from positive net client cash flows, and almost all
of the remainder of the growth resulted from asset appreciation. Our mutual
funds business primarily consists of two families of proprietary mutual and
closed-end funds, the Legg Mason Funds and the Royce Funds. The Legg Mason
Funds invest in a wide range of domestic and international equity and fixed
income securities utilizing a number of different investment styles. The
Royce Funds invest primarily in small-cap domestic company stocks using a
value investment approach. Of our $64.3 billion in Mutual Funds assets as of
March 31, 2004, $43.5 billion were in these two proprietary fund families.
The Legg Mason Funds consist of 22 separate mutual funds. Of these funds,
three are money market funds, eight invest primarily in taxable or tax-free
fixed income securities, nine invest primarily in domestic equity securities
and two invest primarily in international equity securities. Investment
objectives for the Legg Mason Funds range from capital appreciation to
current income. Equity investment strategies may emphasize large-cap,
mid-cap or small-cap investing. The largest of the Legg Mason Funds is Legg
Mason Value Trust, Inc., which had $14.2 billion in assets as of March 31,
2004 and has received recognition for its investment performance over the
last 13 calendar years.
Legg Mason Funds Management, Inc. is the primary equity investment advisor
to the Legg Mason Funds. Legg Mason Funds Management serves as investment
advisor to four of the equity funds in the Legg Mason Funds family,
including Legg Mason Value Trust, Inc. Legg Mason Funds Management also
sub-advises the mutual fund managed by the joint venture described below and
investment products sponsored by Legg Mason Canada and Legg Mason
Investments. Legg Mason Funds Management’s investment process uses a variety
of techniques to develop an estimate of the worth of a business over the
long term. The objective is to identify companies where the intrinsic value
of the business is significantly higher than the current market value.
Institutional
Our Institutional managers provide a wide range of asset management services
and products to domestic and international institutional clients. These
subsidiaries manage a range of domestic, international and global equity,
balanced, fixed income and cash management portfolios for their
institutional clients. Our domestic and international institutional clients
include pension and other retirement funds, corporations, insurance
companies, endowments and foundations and governments.
Wealth Management
Our Wealth Managers provide customized discretionary investment management
services and products to high net worth individuals and families, endowments
and foundations and institutions. Our Wealth Managers seek to provide
portfolio management, client service and other financial services in a
disciplined manner that is tailored to meet our clients’ particular needs
and objectives.
Private Client Business Segment
Our Private Client business segment distributes a wide range of financial
products through its branch distribution network, including equity and fixed
income securities, proprietary and non-affiliated mutual funds and
annuities. This business segment is conducted primarily through Legg Mason
Wood Walker.
Private Client Securities Business
For the fiscal years ended March 31, 2004, 2003 and 2002, our revenues
derived from securities transactions for individual investors (excluding
interest on margin accounts) in our Private Client business constituted
approximately 62%, 61% and 64%, respectively, of our total revenues from
securities transactions and 19%, 21% and 23%, respectively, of our net
revenues. While there has been a significant decline in the percentage of
our revenues contributed by our Private Client securities business, this
percentage has decreased primarily as a result of increases in Asset
Management revenues. We charge retail commissions on both exchange and
over-the-counter (“OTC”) transactions in accordance with an internal
schedule. We grant discounts from the schedule in certain cases. When we
execute OTC transactions with an individual client, we allocate commissions
to Private Client which are included in Revenues by Source table as
Principal Transactions. We also offer account arrangements under which a
single fee is charged based on a percentage of the assets held in a
customer’s account and no charge is imposed on a transaction-by-transaction
basis. This single fee covers all execution and advisory services, including
advisory services provided by our asset management subsidiaries and selected
independent advisory firms. In addition, we provide asset allocation and
advisor performance and selection consultation services. We have entered
into dealer-sales agreements with a number of major distributors that offer
mutual fund shares through broker-dealers. In addition, we sell shares of
our proprietary mutual funds though our retail sales network. See “Asset
Management Business Segment — Mutual Funds.” The total client assets held by
our Private Client Group accounts as of March 31, 2004, 2003 and 2002 were
$85.9 billion, $65.3 billion and $69.6 billion, respectively, including
assets invested in proprietary mutual funds and other asset management
accounts that are included in our assets under management.
One of our strategic goals in our Private Client business has been to
emphasize the percentage of Private Client revenues that are fee-based,
rather than transaction-based. We believe that fee-based revenues tend to be
less volatile, particularly in times of weak equity markets, than
transaction-based revenues. In the fiscal year ended March 31, 2004, the
percentage of Private Client revenues that was fee-based was approximately
44%. In calculating the fee-based percentage of Private Client revenues, we
include in fee-based revenues distribution fees from proprietary and
non-proprietary mutual funds and asset-based account management fees.
Investment Banks in the Directory
Bear Stearns
Citigroup Global Markets
Goldman Sachs
Jefferies & Company
Legg Mason
Lehman Brothers
Merrill Lynch
Morgan Stanley
|
|
