(Bloomberg) -- Franklin Resources Inc. is moving to cut costs and reorganize internally after clients yanked $120 billion from its Western Asset Management Co. unit since late August, when the company revealed that former star bond trader Ken Leech was under an enforcement investigation.
The firm is integrating much of Wamco into the parent and intends to leave the investment team in place, executives said Friday after the company reported earnings for its most recent quarter.
Franklin shares rose as much as 11.3% to $22.42, the biggest intraday increase since November 2022, after Franklin Chief Financial Officer Matt Nicholls told analysts the company aims to enter its fiscal year 2026 with the equivalent of $200 million to $250 million of expense reductions.
Wamco’s remaining contribution is 6% of Franklin’s revenue, Nicholls said. The firm is working to accelerate the end of Wamco’s five-year “autonomy” agreement to operate largely independently within Franklin, which expires in July, he added.
“Looking forward, you could think of our company in a much more simplistic way,” Nicholls said. “On the public market side, we’re going to have one scaled operation supporting a series of investment teams,” he added, and “the second part of the company is the alternative-asset businesses that require very specialized operations to support them.”
The moves to reduce expenses boosted investors’ outlook on Friday, Evercore ISI analysts led by Glenn Schorr said in a note. However, Schorr said the outflows at Wamco will probably continue.
Wamco has been in crisis mode since the summer, with institutional investors and retail clients pulling about $68 billion in the final quarter of 2024. Franklin projects another $17 billion flowed out of Wamco in January, executives said on Friday’s call.
Wamco oversaw $376.4 billion as of July 31, and that number plunged about 30% to roughly $260 billion, Franklin Chief Executive Officer Jenny Johnson told analysts.
In late August, Wamco disclosed that the US Securities and Exchange Commission was investigating Leech, its then-co-chief investment officer.
US prosecutors criminally charged Leech in November, accusing him of “cherry picking” favorable trades for certain clients at the expense of others. He was granted $10 million bail and pleaded not guilty to fraud in a Manhattan court the following month.
Four veteran emerging-market debt investors exited the firm earlier this month for Jackson Financial Inc.’s PPM America, and Wamco subsequently told clients that it’s “fine-tuning” its bond strategies and putting into place compensation and retention packages to try to stem the departures.
(Updates with CFO comments starting in paragraph.)
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