Some global investment firms are reporting sizeable net losses for the fourth quarter and full-year 2007 as a result of write-downs associated with U.S. collateralized debt obligations. Nonetheless, they say, their financial advisors continue to churn out generally robust results.
For instance, Merrill Lynch’s retail brokerage operations now include 16,740 financial advisors, who are averaging more than $850,000 in annual sales or gross production. The broker-dealer recently reported global private client (GPC) net revenues for the fourth quarter of $3.3 billion, the second highest achieved in any quarter, up 10 percent from the prior-year period, reflecting increases across all revenue lines and the inclusion of First Republic revenues.
Merrill GPC net revenues for the full year 2007 were $12.9 billion, up 14 percent year over year, with revenue growth across all lines. Fee-based revenues rose significantly, reflecting higher market values and strong flows into fee-based products, the company says.
Turnover among FAs remained near historical lows, Merrill notes, particularly among top-producing FAs. FA headcount reached 16,740 at quarter-end, an increase of 130 FAs for the quarter and 860 for the full year, reflecting the continuing trend of favorable net recruiting from competitors and hiring into training programs.
Overall, Merrill Lynch had a net loss from continuing operations for full-year 2007 of $8.6 billion. Net revenues for 2007 were $11.3 billion, down 67 percent from $33.8 billion in 2006, while the 2007 pretax loss from continuing operations is $12.8 billion compared to pretax earnings from continuing operations of $9.8 billion for 2006.
The firm says its write-downs included $7.9 billion in the third quarter and $11.5 billion in the fourth quarter related to U.S. collateralized debt obligations comprised of asset-backed securities.
On February 1, Massachusetts Secretary of State William Galvin charged Merrill Lynch in connection with sales of “unsuitable” collateralized debt obligations (CDOs) to the city of Springfield. In 2006, after the city sharply improved its budget, it hired Merrill to invest surplus cash “in safe money-market like investments;” however, two Merrill brokers invested about $14 million into three CDOs, according to Massachusetts authorities.
“The city of Springfield and the Springfield Financial Control Board have said that neither body approved the purchases of these investments,” Merrill has explained in a statement. “After carefully reviewing the facts, we have determined the purchases of these securities were made without the express permission of the city. As a result, we are making the city whole, and we have taken appropriate steps internally to ensure this conduct is not repeated. We believe Springfield to be unique, with sales practices issues unique to these transactions.”
As for further executive shifts at Merrill, Ahmass Fakahany resigned from the co-president and COO roles in January. He joined the firm in 1987.
Citigroup recently reported a quarterly net loss of $9.83 billion, which included $18.1 billion in pre-tax write-downs and credit costs on sub-prime related direct exposures; for the full-year, it had net income of $3.62 billion.
Its Smith Barney advisor business, though, had net income of $327 million in the fourth quarter and sales growth of 27 percent, driven by 18 percent growth in fee-based and net interest revenues and a 43 percent increase in transactional revenues.
Smith Barney includes some 14,860 advisors as of the fourth quarter 2007, down from a peak of close to 15,000 at the end of the second quarter and about 14,875 in the third quarter. Annualized revenue per advisor stands at about $742,000, a slight drop from $768,000 in the third quarter of 2007 but up 11 percent from the same year-ago period.