From the March 2013 issue of Research Magazine • Subscribe!

Wirehouses Boost Wealth Results

Bank of America reported a 63% drop in net income for the fourth quarter of 2012 of $732 million, or $0.03 per share, compared with $1.991 billion, or $0.15 per share, in the year-ago period. This tops equity analysts’ estimates by $0.01 per share.

Revenue for the quarter, net of interest expense, on a fully taxable-equivalent (FTE) basis was $18.9 billion vs. $25.2 billion a year ago. Fourth-quarter 2012 revenue, net of interest expense and excluding $0.7 billion of debit valuation and fair value option adjustments, was $19.6 billion. Subtracting $3 billion of provisions for representations and warranties and obligations tied to mortgage-insurance issues, arising from settlement agreements with Fannie Mae, revenue (net of interest expense) was $22.6 billion. Analysts had forecast sales of $21 billion.

“We addressed significant legacy issues in 2012, and our strengths are coming through,” said Chief Financial Officer Bruce Thompson, in a press release. “Capital and liquidity remain strong and credit continues to improve. Our primary focus this year is to grow revenue, manage expenses and drive core earnings growth.”

The unit, which includes Merrill Lynch, saw its net income more than double to $578 million for the fourth quarter from $272 million a year ago. Quarterly revenue increased 6% year over year and close to 3% from the prior quarter to nearly $4.2 billion, “driven by higher asset-management fees due to higher market levels and long-term [assets under management] flows, as well as higher brokerage transactional revenue,” according to the company

For the full year, net income jumped almost 30% to $2.2 billion from $1.7 billion in 2011. Sales in the wealth-management operations were up $22 million to roughly $16.52 billion in 2012. 

Merrill Lynch boosted quarterly sales by nearly 3% from the third quarter and by almost 9% from the year-ago period to almost $3.53 billion. The full wealth-management unit’s pretax margin was 21% for both the fourth quarter of 2012 and full-year 2012, up from 11% in the year-ago quarter and 16% for the full-year 2011.

As for the movement of assets, some $11.7 billion moved into the unit during the quarter, up from $3.9 billion in the previous quarter and $5.8 billion in the year-ago period. The company says the long-term asset flows in Q4 were $9.1 billion (up from $5.8 billion in Q3’12 and $4.8 billion in Q4’11) were the 14th consecutive period of positive momentum in this area for the wealth-management unit and the 15th consecutive quarter of positive long-term client assets under management flows for Merrill Lynch.

The number of advisors is down to 16,413 from 16,784 in September and 16,457 a year ago, mainly due to the attrition of underperforming employees in Practice Management Development, according to BofA. Including the Merrill Edge advisors, who are part of BofA’s Consumer Business & Banking unit, there are 20,408 client-facing professionals in the organization, down from 20,832 in Q3 and 20,841 in Q4’11. U.S. Trust operations include 2,077 reps.

The level of productivity, or average annual fees and commissions for Merrill Lynch advisors—excluding Merrill Edge reps—improved in the fourth quarter to $935,000 vs. $903,000 in the prior quarter and $872,000 a year ago—increases of 3.5% and 7.6% respectively.

Productivity was $1.3 million for Merrill advisors, excluding those in the Practice Management Development group, in Q4, the company points out. Still, for the full year, FA productivity—including the PMD reps—dropped to $909,000 from $938,000 in 2011.

Client balances rose 7% from the year-ago period to $2.17 trillion “driven by higher market levels and net inflows, driven by client activity in long-term AUM, deposits and loans,” says BofA. Assets under management ticked up $62.5 billion from the fourth quarter of 2011 to $698.1 billion, “driven by higher market levels and long-term AUM flows.”

Morgan Stanley 

The head of Morgan Stanley, which reported fourth-quarter earnings that beat market expectations, said the firm has reached a critical juncture in its turnaround. “After a year of significant challenges, Morgan Stanley has reached a pivot point,” said CEO James Gorman in a press release, pointing at the results of its wealth management operations, which had pretax margins of 17% in Q4.

“We demonstrated meaningful progress in our wealth management joint venture [with Smith Barney], reaching the highest pretax margin since the inception of the JV. We charted a path to acquire the remainder of the JV…. Our firm is now poised to reach the returns of which it is capable on behalf of our shareholders.”

In the fourth quarter, income from continuing operations was $573 million, or $0.28 per share, including a net tax benefit of about $155 million, or $0.08 per share, compared with a loss of $222 million, or $0.13 per share, for the year-ago quarter.

Excluding its debt valuation adjustment, or DVA, net revenues for the current quarter were $7.5 billion compared with $5.5 billion a year ago, and income from continuing operations was $894 million, or $0.45 per share, compared with a loss of $349 million, or $0.20 loss per share, last year. Equity analysts had expected the company to earn $0.27 per share in the most-recent quarter.

The company said it had revenues of $7 billion for the fourth quarter vs. $5.7 billion a year ago and $5.3 billion in the previous quarter.

Compensation expenses of about $3.6 billion in the fourth quarter declined 8% from $3.9 billion in the prior quarter and 4% from $3.8 billion a year ago. Morgan Stanley had 57,061 employees at the end of the fourth quarter, down 1% from the previous quarter and 7% from a year ago, when it had 61,546 employees.

Earlier in January, Morgan Stanley said it would cut 1,600 jobs, mainly in its investment banking and other institutional-services operations in the United States and overseas. Speaking with Bloomberg TV, though, Gorman said that he didn’t expect further layoffs: “We are very comfortable with the headcount we have right now…. We are down 6,000 people from 12 1/2 months ago. It is pretty incredible. That’s now built into our run rate of expenses. We feel very comfortable with where we are now.”

In addition, it was reported that Morgan Stanley employees who make more than $350,000 a year, like traders and investment bankers, and who were set to receive cash bonuses of $50,000 and up, will have these payments deferred and paid out with both cash and stock through 2015.

Morgan Stanley’s Global Wealth Management Group reported pretax income from continuing operations of $581 million, up 144% compared with $238 million in the fourth quarter of last year and up 143% from $239 million in the third quarter of 2012.

Net revenues for the current quarter were $3.5 billion, compared with $3.2 billion a year ago and $3.3 billion in the third quarter. Pretax income after the non-controlling interest allocation to Citigroup was $474 million.

(In the third quarter, Morgan Stanley completed the purchase of an additional 14% stake in the Smith Barney joint venture from Citi, increasing the firm’s interest from 51% to 65%.)

Asset management fee revenues of nearly $1.9 billion increased 16% from last year’s fourth quarter and 4% from the third quarter. Fees and commissions were down 8% year over year, but up 11% sequentially, to $579 million.

Compensation expense for the current quarter was $2 billion compared with $2.1 billion a year ago. Non-compensation expenses were $901 million compared with $922 million a year ago.

Total client assets were $1.8 trillion at quarter end, with client assets in fee-based accounts accounting for $573 billion, or 32% of total client assets. Global fee-based asset flows for the quarter were $3.7 billion vs. $7.5 billion in the third quarter and $4.8 billion in the year–ago quarter.

The number of financial advisors, 16,780, was down 29 from the prior quarter and off 4% from last year’s tally of 17,512. Average annualized revenue per global representative was $824,000 in the fourth quarter, an improvement of 4% from the prior quarter and 13% from last year. Total client assets per Morgan Stanley advisor were $106 million in Q4, an increase 1% from last quarter and 14% from last year.

Wells Fargo

Wells Fargo posted fourth-quarter 2012 earnings and sales that beat expectations, though its net interest margin—or how much it profits on loans—fell to 3.56% from 3.89% a year ago.

In the fourth quarter, net income was $5.1 billion, or $0.91 per share, compared with $4.1 billion, or $0.73 per share, in the same period of 2011. This represents a jump of 24% in net income and a 25% improvement in EPS. Sales for the period grew 7% to $21.9 billion.

The bank’s full-year diluted EPS ticked up 19% to $3.36 in 2012, up 19% from $2.82 in 2011, and net income was $18.9 billion compared with $15.9 billion. Sales were $86.1 billion, up 6% from 2011.

Earnings per share for the fourth quarter, excluding certain one-time items and other adjustments, were $0.89 a share, topping analysts’ estimates of $0.88 for EPS (and $21.3 billion for sales).

“From growing revenue, making strategic acquisitions and achieving efficiency improvements, I am extremely pleased with our 2012 performance,” said Chairman and CEO John Stumpf, in a press release.

The Wealth, Brokerage and Retirement unit reported net income of $351 million, up 13% from the fourth quarter of 2011. Revenue was $3.1 billion, up 2% from the year-ago period.

Excluding a gain on the sale of H.D. Vest and $46 million in lower gains on deferred-compensation plan investments (offset in compensation expense), revenue was up 9%, mainly due to higher asset-based fees and brokerage transaction revenue, according to the wirehouse.

Client assets for the retail brokerage were $1.2 trillion, up 8% from the prior year. Managed-account assets increased $50 billion, or 20%, from a year ago due to strong net flows and market performance, and deposit improved 9%.  

Wells Fargo said it launched an iPad application in December so clients of Wells Fargo Advisors could monitor accounts, get real-time quotes and execute trades. Also, trading capability was added for mobile brokerage clients via a mobile app and online.

In the Wealth Management segment, client assets were $204 billion, up 3% from the prior year. Institutional retirement plan assets grew 13% to $266 billion, with IRA assets improving 11% to $297 billion.

Wells Fargo Advisors, led by Danny Ludeman, said its headcount was 18,662 as of Dec. 31, up from 18,277 in the previous quarter. The number of traditional, nonbank employee advisors as of Dec. 31 was 10,945 vs. 10,857 on Sept. 30.

In mid-November, Wells Fargo said it recruited 24 advisors with $2.2 billion in assets in recent months for its traditional Private Client Group channel. Its independent-advisor channel, FiNet, noted that it added seven advisors with about $1.3 billion in assets in November. WFA should report its December advisor data late on Friday.

“We are very pleased with the company’s outstanding performance despite the challenges our industry faced during this past year, including continued low interest rates and elevated unemployment,” said Chief Financial Officer Tim Sloan, in a statement. “Our balanced business model helped us deliver strong results throughout these challenging times and should provide us the opportunity to continue to deliver value to our shareholders in the coming year.”

UBS-Americas 

UBS reported a fourth-quarter net loss (after taxes) of 1.89 billion Swiss francs (about $2.08 billion), or 0.50 Swiss francs per share, vs. a gain of 323 million Swiss francs, or 0.08 Swiss francs, a year ago, and a loss of 2.14 billion Swiss francs, or -0.57 Swiss francs, in the third quarter. Equity analysts polled by Reuters had expected the loss to be 2.08 billion Swiss francs, while those tracked by Bloomberg had anticipated the loss reaching 2.16 billion Swiss francs.

The bank said it had 6.22 billion Swiss francs in operating income in the fourth quarter of 2012 vs. 5.86 billion Swiss francs last year and 6.29 billion Swiss francs in the prior quarter. Due to the LIBOR troubles and related issues, the investment bank reported operating loss before taxes was 1.82 billion Swiss francs vs. a gain of 481 million Swiss francs a year ago and a loss of 2.53 billion Swiss francs in prior quarter.

“We made decisive progress in executing our strategy last year and started 2013 in a strong position,” said Group CEO Sergio Ermotti, in a press release. “Our financial strength, our attractive and unique business mix and our enviable global client franchise give us a competitive advantage.”

UBS Americas says its wealth-management operations had invested assets of $843 billion, up 1% from $832 billion in the prior quarter and up 12% from $756 billion in the year-ago period. Revenue for the unit grew 7% sequentially and 16% year over year to $1.75 billion vs. $1.63 billion and $1.5 billion, respectively. The group’s pretax profit was $216 million, however, down 7% from $232 million in 3Q ’12 but up 36% from $159 million in 4Q ’11.

Its advisor headcount stood at 7,059 on Dec. 31, up 27 from 7,032 in 3Q ’12 and an increase of 92 from 6,967 in 4Q ‘11. Net new money in the fourth quarter was $8.8 billion, a jump of 84% from $4.8 billion in 3Q ’12 and an increase of 312% from $2.1 billion in 4Q ’11. Including dividends and interest, net new assets were $16.7 billion, up 70% from $9.8 billion in 3Q ’12 and an improvement of 93% from $8.6 billion in 4Q ’11.

Yearly average revenue—or fees and commissions—per advisor was $1,001,000, up 8% from $927,000 in 3Q ’12 and an uptick of 15% from $869,000 in 4Q ’11. “Our revenue per advisor puts us ahead of our peers on this metric for yet another quarter and demonstrates our achievement of our goal of million-dollar-producing advisors,” the company said in a statement.

Invested assets per advisor were $119 million, an increase of 1% from $118 million in 3Q’12 and up 10% from $108 million in 4Q’11.

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