12 Best & Worst Broker-Dealers: Q3 Earnings

Earnings fell as much as 88%, but also jumped over 70% within the BD industry—AdvisorOne spotlights the six best and six worst performers

During the three months ended Sept. 30, the markets were generally kind to investors, with the S&P 500 rising 6.4%. Growth in earnings per share for the financial sector, over the past five years, has increased at a similar level of 6.3%.

In the past quarter, though, financial sector EPS growth averaged 20%, according to Reuters.

Goldman Sachs staged a big turnaround, while Bank of America’s results tumbled, along with those of other major rivals.

Here are 12 companies, selected as the six best and six worst performers in Q3, based largely on how they out- or underperformed their broker-dealer rivals.

(Check out last quarter's winners and losers 12 Best & Worst Broker-Dealers: Q2 Earnings at AdvisorOne.)

Investors Capital CEO Tim Murphy on the company website.6th Best
INVESTORS CAPITAL
(ICH)

Investors Capital Holdings, the parent company of the Lynnfield, Mass.-based broker-dealer of the same name, said it had net income of $280,000 on total revenue of $20.32 million for the period ended Sept. 30. This represents a gain of $0.04 per share vs. a loss of $0.13 a year ago.

Since you can’t calculate a proper percentage increase from a negative number, and the dollar amount of the turnaround was somewhat small, we have ranked Investors Cap No. 6.

In the second fiscal quarter, revenue rose close to 1% from last year thanks to a jump in commission revenue and other fee income, the company says. Commission revenue rose 0.8% to $15.78 million, compared to $15.66 million in the year-ago period. Advisory fees, however, declined 2.5% to $3.98 million, compared to $4.08 million in the same period last year.

The company says that ongoing expense reductions and revenue growth translated into consecutive operating and net income postings for the first two quarters of the fiscal year. It has about 450 advisors and some $8 billion in assets under management.

Raymond James CEO Paul Reilly.5th Best
RAYMOND JAMES FINANCIAL (RJF)

Raymond James said its net income of $83.3 million was up 21% from a year ago in the quarter ended Sept. 30. Earnings were $0.60 per share, up 11% from last year.

Excluding $19 million of pre-tax charges for expenses related to the purchase of broker-dealer Morgan Keegan, net income would have been $95.7 million, or $0.69 per share, up 33% year over year; analysts had expected earnings of $0.63 without the charges.

As of Sept. 30, Raymond James has 6,330 advisors vs. 5,350 a year ago and 6,367 in the earlier quarter. It has 5,452 in the United States, while the rest are in Canada and the United Kingdom; this figure is up from 4,504 last year and down 37 reps from about 5,489 in the earlier period.

Customer at a Wells Fargo ATM. (Photo: AP)

4th Best
WELLS FARGO
(WFC)

Wells Fargo reported record quarterly net income of $4.9 billion, up 22% from last year’s $4.1 billion, also thanks to increased lending, for a total of $21.2 billion in revenues. The record profits reflected 11 straight quarters of gains. EPS came in at $0.88 versus analysts’ expectations of $0.87 and EPS of $0.78 last year – representing a 13% jump in EPS.

Wells, which is the largest mortgage lender in the United States, continued to generate growth across its diversified set of businesses. “In the third quarter, core loans grew by $11.9 billion and we saw continued strength in our mortgage and deposit businesses,” said Chairman and CEO John Stumpf in a statement.

Wells Fargo Advisors said its headcount was 18,277, down 109 from 18,386 in the second quarter of 2012. The number of traditional advisors as of Sept. 30 was 10,857 vs. 10,913 in the previous quarter. Wells Fargo had 2,827 reps working in banks, along with 3,110 licensed bankers.

JPMorgan Chase's headquarters in in New York. (Photo: AP)3rd Best
JPMORGAN CHASE
(JPM)

JPMorgan Chase & Co. (JPM), saw its quarterly profits rise 34% on income of $5.7 billion over the prior year’s $4.3 billion, with earnings per share of $1.40 versus $1.02 a year ago – a jump of 37%.

The results surprised analysts, who expected EPS of $1.24, and were due to strength in core lending, including mortgages, and commercial loans.

New home loans and refinancing totaled $47 billion at JPM in Q3, up 29% from last year. Mortgage unit earnings were 57% higher.

Goldman CEO Lloyd Blankfein. (Photo: AP)

2nd Best
(sort of, see next page)
GOLDMAN SACHS
(GS)

Goldman Sachs said it had net earnings of $1.51 billion, or $2.85 per share, for the third quarter ended Sept. 30. This was a massive improvement from the loss of $393 million, or $0.84 per share, in the third quarter of 2011. That's a nearly $1.9 billion gain.

The company said net revenues in investment banking were $1.16 billion, 49% higher than a year ago. Net revenues in financial-advisory services were $509 million, slightly lower than in the third quarter of 2011.

Net revenues in the firm’s underwriting business, though, were $655 million, which is more than double the amount of the year-ago period. And net revenues in institutional client services were $4.18 billion, 3% higher than the third quarter of 2011.

Sales in fixed income, currency and commodities client execution were $2.22 billion, up 28% than the year-ago period.

Stifel CEO Ronald Kruszewski speaking about regulation reform at the St. Louis Fed.Best
STIFEL FINANCIAL
(SF)

(Goldman technically could have topped the list, but, as we said earlier, you can't calculate a percentage change from a negative number so, again, as we did in Q2, we just like giving the Best rating to the little guy.)

And repeating as champion from Q2 is ... Stifel Financial, which said its net income of $37.7 million, or $0.60 per share, on revenues of $420.1 million, surged compared with net income of $22.3 million, or $0.35 per share, on revenues of $334.2 million for the third quarter of 2011. This represents a 69% jump in net income and a 71% increase in EPS.

“Today’s [Nov. 5] announcement of our merger with KBW furthers our goal of creating the premier middle-market investment bank with a specialized focus on the financial services industry,” Ronald J. Kruszewski, chairman, president and CEO of Stifel Financial, in a statement

The transaction is valued at more than $575 million, of which some $250 million in excess capital on KBW’s balance sheet is expected to be immediately available to Stifel upon closing, the company says.

Ameriprise CEO Jim Cracchiolo at the NYSE.6th Worst
AMERIPRISE FINANCIAL
(AMP)

Ameriprise Financial (AMP) reported third-quarter 2012 net income from continuing operations of $174 million, or $0.79 per share, compared with $322 million, or $1.33 per share, a year ago. This represents a 46% decline in net income and a 41% drop in EPS.

Third-quarter operating earnings, however, were $289 million, or $1.32 per diluted share, compared with $289 million, or $1.19 per diluted share, a year ago. These results beat analysts’ estimates of operating earnings of $1.19 per share for the most-recent quarter.

According to the company, third-quarter operating results included a $48 million, or $0.22 per share, “unfavorable impact” from the company’s annual review of insurance and annuity valuation assumptions and modeling changes (so-called unlocking).

The company says it continued to recruit experienced advisors to Ameriprise, adding 106 advisors in the quarter and 314 year to date for a total 9,815 advisors.

LPL CEO Mark Casady at company's 2012 national conference.5th Worst
LPL FINANCIAL (LPLA)

LPL Financial, the independent broker-dealer, had third-quarter net income of $34.3 million, down 6% versus $36.4 million in the year ago period. EPS for the most recent quarter were $0.3, about 3% off of $0.32 per share a year ago.

Net revenues for the third quarter grew 2.8% to $907.2 million from $882.9 million in the prior-year period.

Adjusted earnings were $53.0 million, or $0.47 per share, up $1.4 million or 2.8% compared with $51.6 million, or $0.46 per share, last year. Analysts had expected adjusted earnings of $0.44 a share on sales of $899.60 million.

The number of independent financial advisors affiliated with LPL Financial stands at 13,170, down 15 reps from 13,185 as of June 30, but up 371 from 12,799 a year ago.

Former Citigroup CEO Vikram Pandit. (Photo: AP) 4th Worst
CITIGROUP
(C)

Citigroup reported net income for the third quarter 2012 of $468 million, or $0.15 per share, vs. net income of $3.8 billion, or $1.23 per share, a year ago. This represents a decline in net income and EPS of 88%.

The credit/debt value adjustment for the bank was a negative $776 million in the third quarter, resulting from the improvement in Citi’s credit spreads, compared to a positive $1.9 billion in the prior year period.

Third quarter results also included a pre-tax loss of $4.7 billion ($2.9 billion after-tax) from the previously announced sale of a 14% interest and other-than-temporary impairment of the carrying value of Citi’s remaining 35% interest in the Morgan Stanley Smith Barney joint venture.

Morgan Stanley CEO James Gorman. (Photo: AP)3rd Worst
MORGAN STANLEY
(MS)

(While Citigroup's dollar drop was somewhat bigger, we gave them a break because they at least turned a profit, whereas Morgan's results reported a big loss.)

The company said its third-quarter loss from continuing operations was $1 billion, or $0.55 per diluted share, compared with income of $2.2 billion, or $1.14 per diluted share, for the same period a year ago. That's a sum total loss of: $3.2 billion.

The company also reported negative revenue of $2.3 billion vs. positive revenue of $3.4 billion a year ago due to changes in Morgan Stanley's debt-related credit spreads and other credit factors, such as the now mandatory debt valuation adjustment (DVA).

Excluding the adjustment, net revenues for the current quarter were $7.6 billion compared with $6.4 billion a year ago and income from continuing operations applicable to Morgan Stanley (MS) was $561 million, or $0.28 per diluted share, compared with income of $64 million, or $0.02 a year ago–topping estimates of $0.24 per share for the quarter.

The number of financial advisors stood at 16,829–down 1% from 16,934 in the second quarter and 5% from 17,661 a year ago.

Bank of America CEO Brian Moynahan. (Photo: AP)2nd Worst
BANK OF AMERICA
(BAC)

After a huge turnaround in the second quarter, Bank of America had net income of $340 million, or $0.00 per share, in the third quarter, compared to $6.2 billion, or $0.56 per share, in the year-ago quarter. Analysts had expected BofA to report a loss of $0.07 per share. That's a little more than a $6.1 billion drop, but hey, at least they still turned a profit.

The bank blamed the flat earnings on $1.9 billion of debit valuation adjustments (DVA) and fair value option (FVO) adjustments related to the improvement in the company's credit spreads, $1.6 billion for total litigation expense, including a charge for the previously announced settlement of the Merrill Lynch class action litigation, and a charge of $0.8 billion related to the re-pricing of certain deferred tax assets.

As for the number of financial advisors stood at 17,533 as of Sept. 30, which is down one from the second quarter but up 439 reps from a year ago.

UBS CEO Sergio Ermotti. (Photo: AP)Worst
UBS
(UBS)

Loser and still champion ... UBS (UBS)—also Q2's worst–reported a third-quarter loss of nearly 2.2 billion Swiss francs (roughly $2.3 billion), or -0.58 Swiss francs per share versus a gain of 3.8 billion Swiss francs (about $4.0 billion), or 0.27 Swiss francs per share a year ago. By our calculations that's a $6.3 billion plunge–yikes!

This news came on the heels of plans to radically restructure the global bank by shedding it of nearly 10,000 employees by 2015 and ridding it of certain businesses, most notably fixed income. UBS now has about 63,745 staff members and wants to trim down to 54,000.

The wealth-management operations in the Americas, though, had strong results. The unit recorded a pre-tax profit of $230 million, up 35% from a year ago and 9% from the previous quarter.

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