From the June 2011 issue of Research Magazine • Subscribe!

Wirehouse Firms Share First-Quarter Results

Morgan Stanley reported adjusted first-quarter net income of $966 million, or $0.50 per share, compared with income of $1.8 billion, or $1.03 per share, for the same period a year ago. These results beat analysts’ estimates, though net revenues of $7.6 billion for the first quarter — down 16% from the same period a year ago — fell short of expectations by about $250 million.  According to the company, results for the current quarter included a pre-tax loss of $655 million related to the firm’s 40% stake in the Japanese securities joint venture Mitsubishi UFJ Morgan Stanley Securities Co. The current quarter also included a net tax benefit of $447 million, or $0.30 per share.  “We continued to strengthen our client franchise and delivered solid results across many of our businesses,” said President and CEO James Gorman in a press release. “Our premier investment banking franchise remains a clear industry leader … We also made gains in key areas of focus — [with] positive flows across wealth management and asset management.”

Morgan Stanley’s Global Wealth Management Group reported pre-tax income from continuing operations of $348 million, up 25 percent from $278 million in the first quarter of last year, but down 11 percent from $390 million in the prior quarter. The quarter’s pre-tax margin was 10 percent, the company says. And income after the non-controlling interest allocation to Citigroup Inc., $74 million, and before taxes was $274 million. Taking into account these adjustments, net income for the unit in the first quarter was $183 million, a jump of 85 percent from last year and 10 percent from the previous quarter. Net revenues were $3.4 billion, up 11 percent from $3.1 billion a year ago and up 3% from $3.3 billion in the previous quarter, thanks to higher commissions and asset management revenues, the company explained in a press release.

Total client assets were $1.7 trillion at quarter-end. Client assets in fee-based accounts were $501 billion, representing 29 percent of total client assets. Net new assets for the quarter were $11.4 billion, and net new flows in fee-based accounts were $17.8 billion.  The 17,800 global representatives at quarter-end achieved average annualized revenue per global representative of $767,000 and total client assets per global representative of $97 million.

The current Morgan Stanley Smith Barney FA headcount is down about 2 percent, or by 340 reps, from last year and fell roughly 1 percent, or by 243 reps, from the prior quarter. In March, Morgan Stanley said it was laying off several hundred lower-producing advisors.

BofA-Merrill

In the first quarter of 2011, Merrill Lynch profits stood at $531 million, up 68.6% quarter-over-quarter and up 22.4 percent year-over-year. Revenues totaled $3.54 billion compared with $2.99 billion a year ago, for a gain of 18.5 percent. Merrill Lynch client balances stood at $1.55 trillion versus $1.45 trillion in Q1 2010, 6.9 percent higher. Quarter-over-quarter revenues were 3.3 percent higher from Q4 2010’s $3.43 billion.

At nearly, 15,700, the number of financial advisors at Merrill Lynch rose by 184 FAs in the early part of 2011 from 15,511 in Q4 2010 and 15,178 a year ago.

Financial-advisor yearly production, or fees and commissions, rose to $931,000 per advisor in the first quarter from $913,000 in the previous period. Assets under management (AUM) at Merrill grew to more than $1.554 trillion, or $99 million in average assets per rep, versus $98 million in the fourth quarter of 2010.

Recently, BofA wealth-management leader Sallie Krawcheck tapped John Thiel as the new head of Merrill Lynch. The new head of Merrill’s “thundering herd” joined the firm in 1989 as an advisor in Tampa, Fla. Most recently, Thiel ran the private bank and investment group for Merrill; he replaced Lyle Mother, who retired on May 1.

Wells Fargo

Wells Fargo’s wealth, brokerage and retirement unit said it had net income of $339 million in the first quarter, up $142 million — or 72 percent — from fourth quarter 2010 and up $57 million — or 20 percent — from first quarter 2010. Revenue was roughly $3.2 billion, up 4 percent from fourth quarter, due to asset-based revenues and brokerage-securities gains, and up 8 percent from the year-ago quarter, driven by higher asset-based revenues and net interest income, according to the company.

The retail brokerage business saw client assets expand 6 percent year over year to $1.2 trillion. Managed account assets expanded 21 percent year over year, by about $45 billion, thanks to net flows and solid market gains.  Wells said it “successfully completed the brokerage conversion in January, converting legacy Wells Fargo brokerage customers to the Wells Fargo Advisors common platform [with Wachovia], providing greater access to more products and services.”

Wells Fargo Advisors now includes 19,194 advisors, the company says, 15,236 of whom are traditional FAs and 3,958 of whom are licensed bankers. In the previous quarter, WFA had 19,574 advisors — with 15,188 in non-bank channels and 4,386 in banks. Thus, over the most-recent period, Wells added 48 non-bank FAs and lost 428 bank-based advisors. In terms of average assets per FA, its 19,194 advisors each have an average of $62.5 million in AUM. Excluding bank advisors, this average rises to $79 million. Average sales or production per FA is about $669,000 on an annualized basis. Excluding bank reps, this figure is roughly $840,000.

UBS

UBS Wealth Management Americas reported a first-quarter 2011 pre-tax profit of 111 million Swiss francs ($126 million) up from a loss of 33 million Swiss francs ($34.6 million) in the prior quarter. Net new money at 3.6 billion Swiss francs, or $4.09 billion, improved for the fifth-consecutive quarter. (International wealth management reported net inflows of 8.9 billion Swiss francs ($10.1 billion) with net inflows in the Asia Pacific region and emerging markets, as well as globally from ultra-high-net-worth clients).

Last quarter, UBS Wealth Management Americas reported a fourth-quarter 2010 loss of 33 million Swiss francs, about $34.6 million, after putting aside about 152 million Swiss francs for litigation related to its sales of auction-rate securities. In terms of financial advisors, the group has 6,811 reps compared to 6,796 in the previous period. Last year at this time, the group had 6,867 reps.

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