Updated from 9:26 a.m. EDT

Legg Mason ( LM) shares were battered Monday after the company reported earnings that missed analyst estimates because of a decline in investment banking and other non-asset management revenue streams.

Recently, shares were down $7.52, or 9%, to $75.28 in very heavy trading. Volume so far was 2.4 million shares, about 6 times the average daily volume of 356,636.

Investment advisory and related fees were $368.8 million in the second quarter, up 53% from a year ago, thanks to a 37% jump in assets under management to $295.7 billion.

Investment banking revenue, however, fell 16% to $26.5 million, down 16% from $31.5 million a year ago, as selling concessions -- the fee received for placing new issues -- and municipal banking revenue tumbled.

Lee says the sellers are most probably "momentum guys" and that, on the whole, Legg Mason's core asset management business "is still very good."

Analysts say the selloff is partially because Legg Mason has consistently outperformed estimates in the past. Furthermore, its earnings miss may prompt Wall Street analysts to reassess their expectations for a number of asset managers reporting later this week.

"Here is a company that has consistently beaten numbers for a while that they built up very large expectations on the Street," says Robert Lee, analyst at Keefe Bruyette & Woods. "The miss in some swing factors like investment banking pricked the balloon."

Set to report over the next week are Janus ( JNS), Franklin Resources ( BEN) and T. Rowe Price ( TROW).

Legg Mason's earnings jumped 48% from a year ago as benefits related to the ongoing migration of assets from a handful of scandal-tainted money managers were leavened by an unexpectedly sharp decline in investment banking revenue.

The Baltimore-based investment services company earned $86.4 million, or $1.14 per share, in the three months to June 30, compared with $58.5, or 83 cents a share, in the previous year. Revenue rose 29% to $538.9 million.

Analysts had been forecasting earnings of $1.23 a share on revenue of $570.8 million.

"In spite of the challenging equity markets this quarter, the anticipated increases in interest rates and lower industry trading volumes, Legg Mason's results -- the second highest in our history -- were surpassed only by the results in the March 2004 quarter, and our assets under management continued to grow," the company said.

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