Franklin Templeton Faces $389 Million Impairment Loss

Franklin Resources, operating as Franklin Templeton, reported a loss in the fourth quarter. This loss was primarily attributed to significant impairment losses from its Western Asset Management unit. The investment manager reported a loss of $84.7 million or 19 cents per share for the quarter ending September 30, marking a decline from a profit of $295.5 million or 58 cents per share recorded in the same period last year.

The loss is attributed to an impairment loss of $389.2 million related to specific investment fund contracts managed by Western Asset. This unit, which specializes in fixed-income portfolio management, is currently under scrutiny by both the U.S. Securities and Exchange Commission (SEC) and the Department of Justice regarding trade allocations related to Treasury derivatives.

In August, Ken Leech, Western Asset's co-director of investments, received a Wells notice indicating that the SEC may take action. Although this notice does not confirm any wrongdoing, it points to potential areas of concern for regulators. Additionally, as disclosed in Franklin Templeton's post-earnings conference call, the Commodity Futures Trading Commission is also investigating these transactions.

Despite the setback from impairment losses, Franklin Templeton experienced an 8% increase in total investment management fees, which rose to $1.77 billion in the fourth quarter compared to the previous year. This growth represents the largest contribution to the company's total revenue.

Excluding one-time costs, the company's adjusted quarterly profit declined by 3% to $315.2 million. Following the earnings announcement, Franklin Templeton's shares dropped 6% to $19.59, indicating the lowest level for the company’s stock in over three weeks.