From the December 2011 issue of Research Magazine • Subscribe!

November 23, 2011

Most Earnings Top Estimates on Mixed Advisor-Headcount News

National/Independent FAs

Bank of America 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. Revenue, net of interest expense (and calculated on a fully taxable-equivalent basis) rose 6 percent to $28.7 billion.

Its global-wealth operations, no longer led by Sallie Krawcheck, 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. Sequentially, the unit reported slightly lower sales and profits vs. the second quarter of 2011.

“This quarter’s results reflect several actions we took that highlight our ongoing transformation toward becoming a leaner, more focused company,” said CEO Brian Moynihan in a press release. “The diversity and depth in our customer and client offerings provided some resiliency in a very challenging environment.”

Wealth Management

The unit, now led by BofA co-CEO David Darnell, saw its net income rise 29 percent from the year-ago quarter to $347 million, which was a 31 percent decline from the second quarter of 2011 (due to a higher provision for credit losses and other factors). The wealth-management unit had a return on average equity of 7.72 percent in the most recent quarter, which is up from 5.91 percent a year ago, but down from 11.54 percent in the second quarter.

 Revenue was $4.2 billion, an increase of about 9 percent year over year, driven by higher asset management fees, net interest income, and transactional activity; sales moved down 6 percent from the second quarter. Sales at Merrill Lynch improved 8 percent from last year to $3.43 billion, but dropped 2 percent from the second quarter.

Client balances, or assets, for the overall wealth-management unit were $2.06 trillion, down about 3 percent from the year-ago quarter and 6 percent from the previous quarter. Balances in Merrill Lynch accounts stood at $1.45 trillion on Sept. 30, a drop of 1 percent from last year and a decline of 6 percent from the previous quarter.

Net asset inflows in Q3’11, though, were $1.9 billion for the wealth-management unit vs. outflows of $2.6 billion a year ago and inflows of $764 million in Q2’11 and $7.5 billion in Q1’11.

The number of total client-facing associates stood at 21,554 as of Sept. 30, up from 20,011 a year ago and 20,833 in the previous quarter. The number of wealth advisors is now 18,488 vs. 16,988 last year and 17,823 last quarter. U.S. Trust includes 2,271 financial professionals.

Advisors with Merrill Lynch number 16,722, up by more than 1,000 from 15,486 a year ago and 16,247 in the second quarter. Much of this increase is from hiring for the Merrill Edge platform, which focuses on mass-affluent clients being serviced through bank branches and call centers.

BofA says that the productivity of Merrill Lynch financial advisors, excluding those with Merrill Edge, is about $854,000 in yearly fees and commissions based on the third quarter’s results — down 4 percent from last quarter, but up 1 percent from last year. For the nine months ending Sept. 30, Merrill advisor production is averaging $892,000 in yearly fees and commissions, up 7 percent from the first nine months of 2010.

Morgan Stanley

Morgan Stanley said it had third-quarter 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.

Net revenues were $9.9 billion for the current quarter compared with $6.8 billion a year ago. Results for the quarter included revenue of $3.4 billion, or $1.12 per share, compared with negative revenue of $731 million a year ago related to changes in Morgan Stanley’s debt-related credit spreads and other credit factors, such as a debt valuation adjustment.

For the current quarter, net income applicable to Morgan Stanley, including discontinued operations, was $1.15 per diluted share, compared with a net loss of $0.07 per diluted share in the third quarter of 2010.

“Morgan Stanley effectively navigated turbulent markets while consolidating our market share gains with institutional clients and demonstrating resilience across the global wealth-management business as evidenced by record net new assets flows since the formation of MSSB,” said President and CEO James P. Gorman, in a statement.

The wealth-management unit — which continues to prune lower-producing advisors — had pre-tax income from continuing operations of $362 million in the third quarter, up 12 percent from the previous quarter and 29 percent from the year-ago period.  Income after the non-controlling interest allocation to Citigroup for the Morgan Stanley Smith Barney joint venture, $52 million, and before taxes was $310 million. Net income after these adjustments and taxes was $169 million in the third quarter, representing a 6 percent drop from the second quarter but a 17 percent increase for the year-ago period.

Net revenues of $3.3 billion declined 6 percent from last quarter but increased 5 percent from $3.1 billion a year ago “primarily reflecting higher asset management revenues and commissions partly offset by net losses from investments associated with the firm’s deferred compensation and co-investment plans,” the company said in a press release.

Revenues from commissions and fees were $670 million in the period ended September 30 vs. $689 million in the second quarter, representing a decline of 3 percent, and $564 million in the year-ago quarter, accounting for a jump of 19 percent. Sales from asset-management, distribution and related activities totaled $1.78 billion in the third quarter, a slight drop from the second quarter and an increase of 16 percent from last year.

Advisors, Assets

The number of financial advisors in Morgan Stanley Smith Barney was 17,291 as of Sept. 30, a 2 percent drop from 17,638 on June 30 and a 5 percent decline from 18,119 a year ago. Assets under management per Morgan Stanley FA averaged $90 million in the third quarter, down from $97 million in the second quarter but up from $88 million for the year-ago quarter.

Total assets under management for Morgan Stanley’s wealth-management unit were $1.56 trillion as of Sept. 30 vs. $1.71 trillion in Q2 and $1.60 trillion a year ago.  (Merrill Lynch said its total AUM was $1.54 trillion in the third quarter.)

Net new retail assets ballooned to $15.5 billion in the third quarter from $2.9 billion last quarter and $5 billion a year ago. Fee-based net new assets were $10.1 billion as of Sept. 30 vs. $9.7 billion as of June 30 and $4.8 billion in the year-earlier period.

This represents average net new assets per FA of $896,420 overall and fee-based net new assets per FA of $584,119, up from $164,000 and $549,949 respectively in the second quarter and $275,953 and $264,915 a year ago. Average annualized revenue (or fees and commissions) per advisor totaled $747,000 vs. $785,000 in the second quarter and $686,000 in the third quarter of 2010.

(Rival Merrill Lynch reported that it had 16,722 financial advisors as of Sept. 30, each with about $854,000 in average yearly fees and commissions based on the third quarter’s results.)

Wells Fargo

Wells Fargo reported third-quarter earnings of 72 cents a share on net income of $4.1 billion, missing analysts’ estimates by a penny but beating last year’s earnings of 60 cents a share on net income $3.3 billion by 20 percent. Overall revenues for Wells Fargo declined 6 percent to $19.63 billion in the most recent period from $20.87 billion in the year-ago quarter. The San Francisco-based bank also revealed that its advisor headcount and asset levels have fallen slightly since the second quarter of 2011.

“We can’t change the economic environment, yet we have worked hard to control the variables we can,” said Chairman and CEO John Stumpf in a statement. “The economic recovery has been more sluggish and uneven than anyone anticipated.”

Wells Fargo’s wealth, brokerage and retirement (WBR) unit reported net income of $291 million, up 14 percent from $256 million a year ago but down 13 percent, or $42 million, from $333 million in the second quarter of 2011. Revenue dropped 6 percent sequentially to $2.9 billion and 1 percent year over year.

Wells Fargo Advisors had client assets of $1.1 trillion as of Sept. 30, a 3 percent drop from last year. However, the company says it also experienced “strong deposit growth in the third quarter, with average balances up $11 billion,” or 14 percent, from the prior year. Also, managed account assets increased $20 billion, or 9 percent from the year-ago period.

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. In the second quarter, WFA had 15,194 advisors and roughly 3,800 bankers — representing 18,789 professionals administering some $1.2 trillion dollars. (It had 15,236 FAs and 3,958 bankers in Q1 of 2011.) The latest tally puts it behind rivals Morgan Stanley and Merrill Lynch in its advisor headcount, but ahead of UBS in the Americas.

UBS

Despite highly publicized losses from the actions of a rogue trader, Swiss-based UBS reported better-than-expected third-quarter profits on Tuesday of 1.018 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. In the second quarter, the bank had profits of 1.654 billion Swiss francs, or 0.26 Swiss francs a share. Net new money from clients worldwide was 4.9 billion Swiss francs, up from 1.2 billion Swiss francs a year ago but down from 8.7 billion Swiss francs in the previous quarter. 

Third quarter net new money for the U.S.-based wealth-management operations, led by Bob McCann, was 4.0 billion Swiss francs (or $4.5 billion) compared with 2.6 billion Swiss francs in the second quarter and 0.3 billion Swiss francs a year ago. These figures exclude dividends and interest. Year-to-date net new money was $11.6 billion as of Sept. 30 versus outflows of $9 billion in the first nine months of 2010.

“Financial advisors employed with UBS for more than one year and net recruiting of financial advisors contributed to the improvement in net new money,” the bank said in a statement.

Net new money at UBS Americas’ wealth-management unit, including dividends and interest, was $9.5 billion, up 20 percent from $7.9 billion in Q2 and up 102 percent from $4.7 billion in Q3’10. At rival Morgan Stanley, these figures were $15.5 billion in Q3’11, $2.9 billion in Q2’11 and $5 billion in Q3’10.

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. Client assets for the group, though, dropped to 686 billion Swiss francs ($776 billion) vs. 694 billion Swiss francs ($785 billion) in the previous quarter and 743 billion Swiss francs ($841 billion) in the same quarter of 2010.

Yearly fees and commissions per advisor at UBS Americas averaged $895,000 per FA in 3Q, up 1 percent from $884,000 in Q2, and up 14 percent from $782,000 in Q3’10.   According to UBS, this puts the unit ahead of peers at Merrill Lynch ($854,000), Morgan Stanley Smith Barney ($747,000) and Wells Fargo ($612,000). The Swiss-based investment bank says it was the only U.S. wirehouse firm to report growth in revenue per FA, or production, in Q3 vs. Q2.

In terms of assets under management per FA, UBS Americas averaged $103 million, compared to $90 million for Merrill Lynch, $90 million at Morgan Stanley and $69 million at Wells Fargo. •

 

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