May 16, 2012

5 Best & Worst Advisor Partner Firms: Q1 Earnings

The wirehouses, top IBDs and associated players serving advisors had their earnings fall as much as 718% and improve up to 13% in Q1—AdvisorOne selected 10 to spotlight

AdvisorOne’s 10 winners and losers from the first quarter. AdvisorOne’s 10 winners and losers from the first quarter.

Companies in the financial industry tracked by Reuters saw their earnings fall by 85% on average in the first quarter of 2012, though their revenues improved 28%. A select group of industry players tracked by AdvisorOne saw their profits drop 97% on average over the same quarter in 2011, largely as a result of heavy losses suffered by a couple of firms in the early months of 2012.

As for stock performance, though, financial services companies had a strong period, and funds tracking their performance moved up about 18% in Q1 (topping consumer-services funds), according to Lipper.

For its rankings, AdvisorOne used the unadjusted profits of 10 of the top wirehouse broker-dealers, independent firms and related financial-advisor entities, and selected the five best and five worst performers in Q1, based on how they out- or underperformed their rivals in this group. Most of these companies appeared in AdvisorOne’s Best & Worst list for Q4.

This quarter, the name of the list has been changed to 5 Best & Worst Advisor Partner Firms from 5 Best & Worst Broker-Dealers, the title used for previous quarterly earnings slideshows.  

Raymond James' top executives

Fifth Best:

RAYMOND JAMES

Raymond James (RJF) said its fiscal second-quarter net income was $68.9 million, or $0.52 per diluted share, versus $80.9 million or $0.64 per diluted share, for the year-ago period—a 17% year-over-year decline. Analysts had expected earnings of $0.56 per share.

Revenues for the period were $871.9 million, a jump of 3% from last year and ahead of analysts’ estimates of $848.3 million.

Excluding a $21 million pre-tax charge for costs associated with its acquisition of Morgan Keegan (which closed April 2), certain interest expenses and adjustments to shares issued for the purchase, its net income would have been $81.9 million, or $0.64 per diluted share.

LPL executives at their IPO in 2010

Fourth Best:

LPL

LPL Financial (LPLA) said its first-quarter net income was $41.2 million, or $0.37 per share, down $7.8 million compared with net income of $49.0 million, or $0.43 per share, from a year earlier—a drop of about 16%. Earnings after adjustments, including a $16.5 million charge related to the refinancing of senior secured credit facilities, were $63.2 million, or $0.56 per share, vs. $59.4 million, or $0.52 per diluted share, in the first quarter of 2011.

The independent broker-dealer’s net revenue for the first quarter of 2012 increased 3.2% to $901.8 million, from $873.9 million in the prior-year period. Equity analysts had expected earnings of $0.54 a share and sales of $890.5 million.

The company also said that the private-equity firms Hellman & Friedman and TPG Capital, which each own about 31% of LPL, are selling a total of 14.5 million shares. This secondary offering represents about 14% of LPL’s total shares and should reduce each of the two private-equity stakes to about 24%.

Citigroup headquarters in New York. (Photo: AP)

Third Best:

CITIGROUP

Citigroup (C) posted stronger-than-expected first-quarter results as bond trading and underwriting revenue jumped compared with the 2011 fourth quarter. The results were better than the company's report three months ago, but profits fell 2% from a year earlier, reflecting the bank's difficulties as it works to boost its earnings in a sluggish global economy.

Citigroup made $2.9 billion in the first three months of the year, or $0.95 per share, which includes a $1.3 billion accounting charge that Citi took because the value of its debt increased.

Without that charge, its earnings per share would be $1.11, which beat estimates of $1.01 among analysts surveyed by FactSet, a provider of financial data.

Citigroup's revenue in the quarter was $19.4 billion, down 2% from the year-ago quarter and roughly 3% from last year.

BNY Mellon headquarters in Pittsburgh. (Photo: AP)

Second Best:

BNY MELLON

BNY Mellon (BK) reported first-quarter 2012 profits of $619 million, or $0.52 per share, versus $625 million, or $0.50 per share, in Q1 2011 and $505 million, or $0.42 per share, in Q4 2011—a drop of just 1%.

In the first quarter of 2012, higher clearing-services fees in the Bank of New York Mellon unit that includes the custody business for RIAs helped BNY Mellon offset lower trading volumes versus a year ago, including a 21% drop in foreign-exchange trading as the bank fights a number of forex lawsuits.

Fees for BNY Mellon’s Clearing Service unit, which includes Pershing Advisor Services' (PAS) RIA custody business, totaled $303 million in Q1 compared with $292 million at this time a year ago, up 4%, and $278 million in the first quarter of 2011, up 9%.

Wells Fargo's San Francisco headquarters. (Photo: AP)

Best:

WELLS FARGO

Wells Fargo (WFC) posted a 13% rise in net income, largely on the strength of its mortgage banking unit. The San Francisco-based bank reported income of $4.25 billion, or 75 cents per share, compared with $3.76 billion, or 67 cents per share, for first-quarter 2011, and $4.1 billion, or 73 cents per share, in the linked fourth quarter. That performance topped the 73 cents projected by analysts polled by Thomson Reuters. Wells improved upon its AdvisorOne ranking as the fourth-best company in Q4 2011 earnings.

Wells Fargo said it recorded revenue of $21.6 billion, compared with $20.6 billion in the fourth quarter, which would represent an annualized increase of 20%. Mortgage banking was a major revenue driver during the quarter, as the company reported $129 billion in mortgage loan originations, increasing from $120 billion the previous quarter, and $84 billion in the year-earlier period.

Wells increased its quarterly common stock dividend rate 83% to $0.22 per share.

TD Ameritrade execs at NYSE in April. (Photo:AP)

Fifth Worst:

TD AMERITRADE

TD Ameritrade (AMTD) on Tuesday reported a 20% decline in profits this quarter compared with a year ago, when it saw a record-breaking trading quarter. The Omaha-based firm’s earnings per share totaled $0.25 for the second fiscal quarter versus $0.30 a year ago, meeting analysts’ expectations.

Net income stood at $137 million for the quarter compared with $172 million a year ago and $152 million in the prior quarter. Revenues totaled $673 million, down 6% from $718 million a year ago.

President and CEO Fred Tomczyk, in a phone interview with AdvisorOne, said earnings and revenue were “right on consensus,” though he did acknowledge that TD Ameritrade’s trades were down at a rate of 51,000 per day.

Charles Schwab at SchwabImpact conference.

Fourth Worst:

CHARLES SCHWAB

Rising compensation and lower asset management fees contributed to a roughly 25% decline in first-quarter profits at Charles Schwab (SCHW). According to Reuters, despite the falloff, the quarterly results were in line with Wall Street analysts’ predictions.

Schwab reported a profit of $195 million for the quarter, down from $243 million for the same period last year. Earnings per share declined from 20 cents in 2011 to 15 cents this year. The company also reported revenues down 1% to $1.19 billion.

Schwab said operating expenses jumped 8% to $876 million for the quarter, while compensation and benefits charges rose 6% to $465 million.

Customers conducted an average of 318,400 trades through Schwab every day during the first quarter, unchanged from 2011, though the company made an additional 2% on each trade compared with last year.

BofA CEO Brian Moynahan. (Photo: AP)

Third Worst:

BANK OF AMERICA

Bank of America (BAC) said it had first-quarter net income of $653 million, or $0.03 per share, versus profits of $2 billion, or $0.17 a share, last year—representing a 67% decline in earnings. Revenue, excluding certain adjustments, was roughly $27.3 billion, a drop of 3% from last year. BofA fell hard from its spot as the best advisor partner for Q4 earnings, though, at least it's no Morgan Stanley.

BofA, which is reportedly trying to sell its non-U.S. Merrill Lynch wealth operations, took charges of $4.8 billion related to changes in the value of its debt. Excluding these adjustments, earnings were $0.31 cents a share, topping analysts' estimates of $0.12.

UBS CEO Sergio Ermotti. (Photo: AP)

Second Worst:

UBS

UBS (UBS) reported a steep drop in first-quarter net profits versus the year-ago period, but a sharp jump in net new money across its wealth-management operations compared with the final quarter of 2011.

Its net income was 827 million Swiss francs ($906 million) in the first quarter of 2012 compared with 1.8 billion Swiss francs ($2.0 billion) a year ago and 319 million Swiss francs ($349 million) in the fourth quarter—a 118% drop. The first quarter included an own-credit loss on financial liabilities designated at fair value of close to 1.2 billion Swiss francs ($1.3 billion), the company said, “primarily reflecting the tightening of our credit spreads over the quarter.”

Net new money in the wealth-management businesses worldwide was 10.9 billion Swiss francs ($11.9 billion). Wealth Management Americas reported a record pre-tax profit jump of 34% to $209 million vs. last year, as net new money more than doubled from the previous quarter to $4.6 billion; it was $3.9 billion a year earlier.

Morgan Stanley CEO James Gorman. (Photo: AP)

Worst:

MORGAN STANLEY

Morgan Stanley (MS) reported a first-quarter loss of $119 million, or 6 cents a share, compared with last year’s profit of $736 million, or 50 cents a share; this represents a 718% decline in profits. The loss was due mainly to a debt valuation adjustment, the company said. Morgan Stanley now has the dubious honor of being a repeat champion as the worst advisor partner firm for quarterly earnings; its profits had a steep drop in Q4 as well.

Excluding that adjustment, the operating income attributable to the bank was $1.4 billion, or 71 cents a share – topping earnings estimates of 44 cents.

The number of Morgan Stanley Smith Barney advisors dropped 2% from last quarter and 5% from last year to 17,193, while total assets under management hit nearly $1.75 trillion, a jump of 7% from the previous quarter and a 2% increase from last year. (It had 17,512 advisors in the fourth quarter of 2011 and 18,124 in the first quarter of 2011.)

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Top 10 lists from AdvisorOne:

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