Many of the larger broker-dealers staged dramatic turnarounds in their performance in the third quarter of 2011 over the prior year's third quarter, despite some wild market gyrations. According to PNC Wealth Management, though, these and other members of the financial sector generally lagged the overall performance of other companies in the S&P 500 Index: Financial-sector firms grew earnings an average of 9% in the three months ending Sept. 30, while members of the S&P had an overall improvement of earnings of 18%.
Here are 10 companies, most of which were ranked on AdvisorOne's Best & Worst list for Q2, selected as the five Best and five Worst performers in the third quarter, based largely on how they out- or underperformed broker-dealer rivals.
Wells Fargo (WFC) reported third-quarter earnings of $0.72 a share on net income of $4.1 billion, missing analysts’ estimates by a penny but beating last year’s earnings of $0.60 a share on net income of $3.3 billion by 20%. The San Francisco-bank also revealed that its advisor headcount and asset levels have fallen slightly since the second quarter of 2011.
Wells Fargo’s wealth, brokerage and retirement (WBR) unit reported net income of $291 million, up 14% from $256 million a year ago but down 13%, or $42 million, from $333 million in the second quarter of 2011. The unit, which completed the sale of H.D. Vest Financial Services business on Oct. 3, says it now has 15,188 financial advisors and 3,590 licensed bankers–or a total of 18,778.
LPL Investment Holdings (LPLA), parent company of the largest independent broker-dealer, LPL Financial, posted a 39% increase in net income to $36.4 million, or $0.32 a share, on a 16% increase in net revenue for the third quarter ended Sept. 30, 2011. LPL was AdvisorOne's top performer on our Q2 list.
The company, led by Mark Casady, also said it had added 782 net new representatives in the year through September, giving it a total of 12,799 reps vs. 12,017 reps a year ago and 12,660 reps as of July 30, 2011. Net revenue for the period ended Sept. 30, was $882.9 million, a 16.2% year-over-year increase.
Charles Schwab (SCHW) said its earnings rose to 18 cents a share in the third quarter on net income of $220 million, compared to 10 cents a share on net income of $124 million, a year earlier, missing estimates by 1 cent but improving results 80% year over year.
Net revenue at the firm -- led by Walt Bettinger -- grew 11% to $1.18 billion from $1.06 billion a year ago, and pre-tax margin for Q3 ’11 was 30.5% vs. 18.7% last year. During the third quarter, the average number of daily revenue trades was 323,100, a 39% year-over-year increase and a 22% sequential increase. However, average revenue per revenue trade fell 2% both from last year and from last quarter to $12.04.
BANK OF AMERICA
Bank of America-Merrill Lynch (BAC) reported net income of $6.2 billion, or $0.56 per share, for the third quarter vs. a net loss of $7.3 billion, or $0.77 per share, last year -- topping analysts’ estimates by a wide margin and improving results by nearly 138%. Revenue, net of interest expense (and calculated on a fully taxable-equivalent basis), rose 6% to $28.7 billion. In a big turnaround, BofA came in dead last on our Q2 list.
Its global-wealth operations, led by co-CEO David Darnell, following Sallie Krawcheck’s dismissal, reported year-over-year increases in revenue and net income, as the total number of advisors at Merrill Lynch grew by about 500 to 16,722 on the expansion of the Merrill Edge platform.
Morgan Stanley (MS) increased its earnings roughly 2,200% in Q3: it reported net income of $2.2 billion, or $1.14 per share, from continuing operations compared with income of $314 million, or $0.05 per share, for the same period a year ago, beating analysts’ estimates at the company, which is led by James Gorman. Morgan was the 2nd Worst performer on our Q2 list.
The wealth-management group had net revenues of $3.3 billion, with net new assets for the quarter of $15.5 billion, a record since the inception of the Morgan Stanley Smith Barney joint venture (MSSB), according to the company.
JPMorgan Chase (JPM) said its third-quarter net income was $4.3 billion, or $1.02 per share, compared with $4.4 billion, or $1.01 per share in the third quarter of 2010 – a decline of about 1% for the firm.
Chairman and CEO Jamie Dimon, commenting on the special issues of the period ending Sept. 30, said: “All things considered, we believe the firm’s returns were reasonable given the current environment.”
In terms of its capital requirements, Dimon believes the company continues to maintain its fortress balance sheet, ending the third quarter with a Basel I Tier 1 Common ratio of 9.9%. “Our strong capital position allowed us to repurchase $4.4 billion of common stock during the third quarter,” he said.
Raymond James Financial (RJF) said that it had a roughly 2% decline in Q3 ’11 net income: $68.9 million, or $0.54 a share, in the quarter ended Sept. 30 vs. net income of $69.1 million, or $0.55 a share in the year-ago quarter, missing analyst estimates by $0.01. These results came despite strong year-over-year growth in its private-client unit and an increase in both its global advisor headcount and its U.S. advisor headcount.
Raymond James, led by Paul Reilly, boosted its overall number of advisors in the United States, Canada and the United Kingdom to 5,113 vs. 5,090 last year and 5,093 last quarter. The U.S. total was 4,504 as of Sept. 30, up just 1 from 4,503 a year ago and an increase of 12 from 4,492 in June.
Ameriprise Financial (AMP) said its net income from continuing operations fell 16% in Q3 to $271 million, or $1.12 per share, compared to $346 million, or $1.33 per share, a year ago. These quarterly results missed analysts’ estimates of $1.21.
Operating net revenues, however rose to $2.5 billion from $2.3 billion a year ago, primarily driven by double-digit growth in management and distribution fees, says Ameriprise, the former parent company of Securities America, which is led by Jim Cracchiolo.
The number of advisors increased by 51 sequentially to 9,714; from a year ago, though, the number is down by nine advisors.
Despite highly publicized losses from the actions of a rogue trader, Swiss-based UBS (UBS) reported better-than-expected third-quarter profits of 1.02 billion Swiss francs, or 0.27 Swiss francs per share, vs. profits of 828 million Swiss francs, or 0.47 Swiss francs per share, a year ago. This represents a year-over-year decline of nearly 43% at the investment bank, now being led by Sergio Ermotti.
In the period, net new money for the U.S.-based wealth-management operations, led by Bob McCann, were $9.5 billion, including dividends and interest. The number of financial advisors in the unit rose to 6,913 compared with 6,862 in the second quarter and 6,783 a year ago.
Goldman Sachs (GS) saw its Q3 earnings drop roughly 120% due to trading and investment bank weakness. The investment bank reported a $428 million loss for Q3 -- only the second time that the investment bank has reported a quarterly loss since it went public in 1999. According to the bank’s report, the loss per share was $0.84 compared with earnings per share of $2.98 for Q3 2010.
Goldman Chairman and CEO Lloyd Blankfein attributed the bank’s loss to market volatility that ran rampant throughout the third quarter. Net revenues in Goldman’s Financial Advisory business were 5% higher than last year's, at $523 million.
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