T. Rowe Price profit falls as asset values drop Another asset manager sees write-down, fee pressure hit earnings

By Sam Mamudi, MarketWatch
Last update: 3:34 p.m. EST Jan. 29, 2009
Comments: 6
Updated with a correction: An earlier version of this story incorrectly reported the decline in assets at Franklin Resources during the fourth quarter. Assets declined 18% in the period.
NEW YORK (MarketWatch) — Baltimore-based asset manager T. Rowe Price Group on Thursday said its fourth-quarter profit tumbled 87% amid more than $80 million of charges and declining assets under management.
BEN 49.29, -5.11, -9.4%) said its fourth-quarter profit was down 77% compared to the year-ago period. Assets declined 18% due to net new outflows, as well as market depreciation.
“We think T. Rowe remains a premier asset manager that warrants a premium valuation and should continue to generate organic growth and has a pristine balance sheet,” wrote analysts at Keefe Bruyette & Woods in a note earlier this month. “Also, we think the meaningful net cash position provides some downside protection to the stock price and valuation.”
In a note after the results were announced, FBR analysts said, “We believe this quarter’s results demonstrate that, although T. Rowe is one of the better asset managers, it is not immune to the challenging operating environment.”
Job cuts
T. Rowe is one of the few asset managers to not announce a job-cutting program, but Kennedy said that cuts have been made. For instance, he said, recruiters have been let go as the firm has undergone a “pretty significant slowdown in hiring.”
Kennedy said that there is no target level for staff cuts, adding that layoffs are more “surgical.” Compensation and related costs fell $28 million in the fourth quarter compared to the 2007 period due mainly to lower bonuses. Headcount increased by 21 people in the quarter, to 5,385 overall. Kennedy said that much of the new hiring in 2008 was made on the client service side to meet requirements. T. Rowe’s business grew 9.5% annually over the previous five years.
In its earnings statement, T. Rowe said that it is debt-free and cash and investment holdings of $1.1 billion. Asked whether the firm would be interested in using the cash to buy a rival, Kennedy said the firm is “primarily looking to expand out capabilities to do a better job for clients.” He added that distribution is another area of focus.
“We’re quite choosey” about acquisitions, he said.
Credit Suisse’s Siegenthaler said he did not think T. Rowe is interested in making acquisitions. “We believe the company may look at asset roll-ups, where T. Rowe can take the clients and offer a better product menu than a current manager who is looking to exit the business.”
Kennedy said that despite a rough few months, he’s upbeat about T. Rowe’s outlook.
“My sense of optimism comes from our focus on clients,” he said. “If we can look after them we will do just fine.”
Sam Mamudi is a MarketWatch reporter in New York.

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