The larger broker-dealers and investment groups had a fairly mixed performance in the fourth quarter of 2011, despite the market’s comeback–including a 25% rise in the S&P 500–and the overall sector’s very strong Q4 earnings results.
The financial sector overall saw its earnings jump close to 240% from the year-ago quarter, according to Reuters. The general bank sub-sector, though, saw its earnings fall 5%, and the investment banks/brokerage sub-sector’s earnings dropped an average of 225% in the period, as of Tuesday.
Here are 10 companies, most of which were ranked on AdvisorOne's Best & Worst list for Q3, selected as the five Best and five Worst performers in Q4, based largely on how they out- or underperformed broker-dealer rivals.
TD Ameritrade (AMTD) saw its fiscal first-quarter net income (for the period ended Dec. 31, 2011) increase about 10%, even though the Omaha, Neb.-based company also said that its sales fell a tad, less than 1%, to $653.4 million.
A key driver of Ameritrade's revenue, the fees it charges for transactions, was affected by growing worries about the European debt crisis. The average number of trades per day dipped to 367,479 from 371,916 in the same period a year earlier.
Wells Fargo & Co.’s (WFC) fourth-quarter profit jumped by 20% thanks to a steadier mortgage business, higher commercial lending and an increase in deposits. The San Francisco-based bank, which ranked as the fifth-best broker-dealer in Q3, said its loan balances expanded 2% to nearly $770 billion.
The company’s financial advisors numbered 15,263 (up 75 from three months ago), 11,119 of whom are in the traditional brokerage channel (representing a jump of 39 from the previous quarter). WFA is part of the wealth, brokerage and retirement unit, which had net income of $325 million in Q4 vs. $291 million in Q3 and $197 million in the year-ago period.
Charles Schwab (SCHW) said its earnings rose 29% in the fourth quarter, putting it in the third-best spot for the second quarter in a row. The company’s sales, though, dropped 1% year over year to $1.113 billion.
Net new assets in advisor-services accounts totaled $9.2 billion in the fourth quarter, a drop of 13% from the previous quarter and a decline of 44% from the year-ago period. Assets in advisor-services accounts stood at $679 billion in the most-recent period, a 4% year-over-year gain and a 6% jump from the third quarter.
LPL Investment Holdings (LPLA), the parent company of LPL Financial, grew its earnings 129%, according to Reuters’ data, moving it up from its position as the fourth-best performing broker-dealer in Q3. It reported a fourth-quarter profit of $39.4 million, and net revenue rose 1%, to $828.7 million.
Total advisory and brokerage assets increased nearly 5% during the quarter to $330.3 billion vs. $315.6 billion a year ago. LPL said it added 172 new advisors during the fourth quarter, but it also lost 124 advisors related to the UVest platform conversion. The firm ended 2011 with 12,847 advisors, up 3.2% from last year.
BANK OF AMERICA
Bank of America (BAC) had net income of $2 billion, or $0.15 per share, for the fourth quarter of 2011, giving it the best broker-dealer performance with an earnings jump of 191%. This also moved it up from the second-best BD slot last quarter. Revenue, net of interest expense, grew 11% to $25.1 billion on a fully taxable-equivalent basis, including results at Merrill Lynch.
As of Dec. 31, BofA employed 17,308 financial advisors, an increase of 214 from the previous quarter and 1,697 over the previous year. Much of the growth came from the hiring of Merrill Edge advisors, who serve client households with $250,000 or less in investable assets.
JPMorgan Chase (JPM) remained the fifth-weakest performer for the second quarter in a row. Earnings fell close to 20%, as the asset-management unit contributed to the disappointing results, reporting a 40% drop in income. For the full year, though, profits were up 9% to $19 billion.
On the plus side, asset management added 160 private bank client advisors in 2011. Assets under supervision totaled $1.9 trillion, an increase of $81 billion, or 4%, while assets under management totaled $1.3 trillion, an increase of $38 billion, or 3%, from the prior year.
The Bank of New York Mellon Corp. (BK) reported a roughly 25% decrease in quarterly profits compared to last year, moving it up one notch from the fifth-worst position last quarter. The clearing unit, which includes Pershing Advisor Services’ (PAS) RIA custody business, had revenues of $275 million in Q4 2011 compared with $276 million in Q4 2010.
Overall, assets under custody and administration amounted to $25.8 trillion on Dec. 31, 2011, an increase of 3% compared with the prior year and flat quarter over quarter. The increase compared with Dec. 31, 2010 was driven by net new business. Assets under management, excluding securities lending assets, amounted to $1.26 trillion, an increase of 8% compared with the prior year and 5% compared with Q3 2011.
3rd Worst: GOLDMAN SACHS
Last quarter’s worst performing broker-dealer managed to shrink its level of declining earnings in Q4 to a drop of about 52% vs. Q3’s decline of 120%. Its latest results were affected by lower investment banking fees in a quarter marked by choppy financial markets.
Goldman's quarterly revenue fell 30% to $6 billion. It set aside $2.2 billion for pay, 2% less than the year before. Goldman took in 43% less in the fourth quarter than it did in the same quarter a year earlier from advising companies on mergers and acquisitions and underwriting fees for stock and bond sales.
The firm's investment banking transaction backlog, an indicator of future revenue and profit, decreased from the quarter before, though it was slightly higher than a year earlier, according to The Associated Press.
UBS (UBS) said its fourth-quarter net income fell about 76% to 393 million Swiss francs, keeping it in the second-worst broker-dealer position for the second quarter in a row. Wealth Management Americas’ pre-tax profit was 114 million Swiss francs (or $125 million) compared with a loss of 32 million Swiss francs last year and a gain of 139 million Swiss francs in the prior quarter.
According to UBS, net recruiting of financial advisors drove net new money in Q4 for Wealth Management-Americas, which has nearly 7,000 advisors. Including interest and dividend income, net new money was 7.9 billion Swiss francs (or $8.7 billion) vs. 8 billion Swiss francs in the prior quarter and 8.9 billion Swiss francs in the year-ago period.
For the fourth quarter, UBS said it had the highest revenue (or fees and commissions) per financial advisor in the industry at $842,000, as well as the highest invested assets per FA and net new money per rep.
See-sawing from a 2,200% profit increase (yes, two thousand, two hundred) in Q3 to rank as AdvisorOne's best broker-dealer, to the worst this quarter is Morgan Stanley (MS), which reported a 131% percent drop in profits. The loss was tied to a $1.7 billion legal settlement and issues related to MBIA and credit-default swaps.
The company, led by James Gorman, said its revenue for the period fell to $5.7 billion from $9.9 billion in the previous quarter and $7.7 billion a year ago. Much of the decline was reported by the institutional-securities unit.
Its wealth-management unit saw its flows of net new assets drop about 60% from both the third quarter and the year-ago period to $6 billion. Morgan Stanley, which says it moved to streamline the job descriptions of advisors and staff at its legacy Morgan Stanley and Smith Barney channels, had a pre-adjusted total of 17,156 financial advisors as of Dec. 31and 17,649 advisors after accounting for the adjustment.
Top 10 lists from AdvisorOne: