Asset manager Legg Mason ( LM) posted a 38% rise in first-quarter earnings, but the results missed Wall Street's forecast as the recent wild ride in the equity markets shrank assets under management.

For the quarter ended June 30, Legg Mason's net income rose to $156 million, or $1.08 a share, from $112.8 million, or 93 cents a share, a year earlier.

Revenue more than doubled to $1.04 billion from $437.7 million last year, driven by the acquisitions of Citigroup's ( C) asset management unit and Permal Group, which were completed at the end of last year. The Citigroup deal made Baltimore-based Legg one of the nation's largest money managers.

Despite the growth, the results were below analysts' average forecasts for earnings of $1.13 a share and revenue of $1.08 billion, according to Thomson First Call.

The miss sent Legg Mason's shares down $9.78, or 10%, to $84.55 in recent trading. The company also disappointed in the previous quarter, and shares were down about 20% for the year before Tuesday's slide.

"This was a very difficult quarter for the markets, and particularly equity markets, and we were not immune to the effects of these market difficulties," Chairman and Chief Executive Raymond "Chip" Mason said in a statement. "Our ability to reduce our cost base contributed to higher net earnings for the quarter despite the challenging market conditions, which caused lower revenues and contributed to lower performance fees."

Assets under management at the end of the quarter were at $854.7 billion, down about 1.5% from the $867.6 billion at March 31. Legg Mason said it had about $7 billion in net client cash outflows along with $6 billion in market value decreases.

But the company said the outflow in liquidity assets was offset by strong performances in institutional and wealth management divisions, fixed-income market appreciation and net client inflows into long-term fixed-income assets.

"It was probably one of the more challenging quarters we've seen in terms of assets under management," Mason said during the call, noting that it was only the second time in 60 quarters that the company posted a drop in assets under management.

The company announced a 17% increase in its quarterly dividend to 21 cents a share. But despite about $1 billion in cash on the books and the fact that the stock has been dropping, President and Chief Operating Officer James Hirschmann said that Legg Mason has no plans at this time to buy back stock.

He said the company will get around to a buyback, but that "it's just not likely over the next three of four months." He characterized the current environment as a period of stabilization, due in large part to the Citigroup deal.

Legg Mason said that the integration of the Citigroup business is proceeding on schedule and that it began to realize "meaningful" cost savings during the quarter.

"The story with Citigroup is just beginning to unfold," Hirschmann said during the conference call. "The road has had bumps in it ... but we've seen no road closures or major potholes to date."

Legg Mason also reiterated its plan to cut its mutual fund lineup to 119 from 166 in order to reduce product overlap caused by the Citigroup acquisition. The company also wants to implement a single corporate structure to streamline fund administration.

Legg Mason's managed investments business now represents approximately 40% of assets under management. Upon completion of the restructuring, its fund lineup will contain four branded U.S. fund families: Legg Mason Funds, Legg Mason Partners Funds, Royce Funds and Western Asset Funds.