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Warning Batters Legg Mason

Shares sink more than 16%.

Legg Mason's (LM) - Get Legg Mason, Inc. Report shares were slumping Wednesday, a day after the Baltimore-based asset manager warned of a steep earnings shortfall.

Following the close of trading Tuesday, the company said it expects to make 96 cents to $1.02 a share in the second quarter, far shy of the $1.16-a-share Thomson Financial consensus estimate.

Shares of Legg Mason were tumbling $17.26, or 16.4%, to $88.05 in early action. Volume was much heavier than normal.

Citing a weaker-than-expected showing in September, Legg Mason said revenue fell 1% from first-quarter levels, as the asset mix shifted toward lower revenue-generating fixed income assets.

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Legg Mason was also hit to the tune of 4 cents a share by what it called "unanticipated mutual fund distribution fee expenses payable by our acquired business to our principal third-party distributor that relate to prior quarters."

The company estimates that its assets under management as of Sept. 30 were $890 billion (approximately 50% fixed income, 35% equity and 15% liquidity). Assets under management at June 30 were $855 billion.

Additionally, Legg Mason confirmed that its integration of the business it acquired in December 2005 remains on schedule, and that it continues to expect to achieve the previously announced cost savings from that integration.