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Wirehouse Firms Report Third Quarter '09 Results

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Over the past 12 months, the broker-dealer field has been in a tremendous state of transition. Now after a string of significant mergers and acquisitions, four major wirehouse players are left in the United States, with two now part of larger organizations.

The latest tally puts Merrill Lynch’s advisors ahead in terms of productivity, or trailing-12 month sales, fees and commissions with $824,000 per advisor in the third quarter of 2009. Morgan Stanley Smith Barney reported $662,000 per advisors. (Wells Fargo and UBS did not release comparable figures.)

In terms of the size of the respective advisor forces at the evolving wirehouses, Morgan Stanley Smith Barney comes out on top with more than 18,000. However, Bank of America would be larger – at 19,000 – if its U.S. Trust associates are included. And Wells Fargo can boast having about 21,000 advisors, if its financial specialists are included.

An interesting point to keep in mind is that the former head of Merrill Lynch’s financial advisors, Robert McCann, is now in charge of UBS Americas. And UBS’ advisor force is roughly half the size of Merrill’s. Meanwhile, the size of Morgan Stanley has more than doubled through its deal with Smith Barney.

BofA-Merrill Lynch

Bank of America says its Global Wealth and Investment Management unit had net income of $271 million in the third quarter. “Net revenue increased to $4.1 billion as investment and brokerage service income rose due to the addition of Merrill Lynch and the level of support for certain cash funds declined,” the company says.

Merrill Lynch Global Wealth Management net income increased 9 percent to $310 million from a year earlier as the addition of Merrill Lynch was partially offset by higher credit costs. Net revenue rose to $3.0 billion from $1.0 billion a year ago as investment and brokerage income increased, mainly from the addition of Merrill Lynch.

U.S. Trust, Bank of America Private Wealth Management had a net loss of $52 million as net revenue declined and credit costs rose, mainly because of a single large commercial charge-off, according to BofA. Net revenue fell 11 percent driven by lower equity market levels and reduced net interest income.

Columbia Management’s net loss fell to $48 million; its Prime Funds no longer have exposure to structured investment vehicles.

Overall retail client assets for the unit were $1.92 trillion, with assets under management of $740 billion and client brokerage assets of $1.23 trillion. The AUM figure reflects net outflows of $88 billion for the past nine months, including $18 billion of net outflows in the more recent quarter.

On its own, Merrill Lynch had asset-management fees and commissions of $1.54 billion in the third quarter, up from $1.43 billion in the second quarter. Its assets under management were $740 billion, and client brokerage assets stood at $1.23 trillion. Overall retail client balances were $1.4 billion.

By comparison, U.S. Trust reported asset-management fees and commissions of $310 million in the same period vs. $331 billion in the second quarter. Total client balances for this group of roughly 4,000 advisors is $315 billion.

In a November 10 presentation, departing BofA CEO and President Ken Lewis says that the integration of Merrill Lynch produced $1 billion of cost savings in the third quarter and $2.2 billion of savings in the first three quarters of 2009, beating the firm’s original estimate.

In addition, he says that BofA has retained 94 percent of Merrill’s high-producing FAs–now being led by former-Smith Barney chief Sallie Krawcheck–and that it has received some 1,400 referrals from advisors to the commercial bank.

Morgan Stanley Smith Barney

Morgan Stanley’s Global Wealth Management Group has posted pre-tax income of $280 million, compared with a pre-tax loss of $1 million in the third quarter of last year. Comparisons of current quarter results with those of prior periods were affected by the results of the formation of Morgan Stanley Smith Barney (or MSSB), which closed on May 31, 2009, the company notes.

Net profit after the non-controlling interest allocation to Citigroup Inc. and before taxes was $197 million for the most recent three months. The quarter’s pre-tax margin was 9 percent and return on average common equity was 5 percent.

In addition, net revenues were $3.0 billion, up 91 percent from a year ago, reflecting higher net revenues related to MSSB. Non-interest expenses of $2.7 billion increased 74 percent from a year ago, primarily reflecting the operating results of MSSB and $65 million in integration costs.

Total client assets were about $1.53 billion at quarter-end, up 137 percent from $647 billion a year ago (before the MSSB merger) and up 8 percent from roughly $1.42 billion in the second quarter of 2009.

Client assets in fee-based accounts were $365 billion and represent 24 percent of total client assets. Client assets in the $1 million-and-up client segment represented about 69 percent of total assets.

The number of MSSB global representatives at quarter-end was 18,160 in 930 locations. This FA figure is down about 2 percent from the 18,444 reps reported at the end of the second quarter. A year ago, Morgan Stanley had 8,588 reps.

Attrition, primarily within the lower quintiles, has substantially declined since the closing of the joint venture, says Colm Kelleher, executive vice president and CFO. FA turnover within the top two quintiles was “at historic lows of under 1 percent.”

MSSB financial advisors had average annualized revenue of $662,000 in the latest three months, down 1 percent from $671,000 in the second quarter and 12 percent off the $750,000 average of a year ago.

Total client assets per rep were $84 million in the most recent period, up 9 percent from $77 million in the second quarter and an increase of 12 percent from $75 million a year ago.

Net new assets in domestic accounts were in the red to the tune of $8.8 billion in the third quarter, after declining $2 billion in the second quarter. In the third quarter of 2008, they were up $8.3 billion.

The outflows of $8.8 billion “reflect the lag effects from financial advisors that left Smith Barney prior to the closing,” Kelleher explains. “We’re seeing a significant reduction in outflows compared to the first half of last year. Deposits in our bank deposit program increased to $110 billion, of which $52 billion is held by Morgan Stanley banks; total firm-wide deposits at quarter end was $62 billion.”

Asked by an equity analyst if MSSB could achieve “industry-leading margins of 25 percent,” Kelleher says: “There’s no reason at all why we shouldn’t be able to achieve that. Remember, you had a lot of attrition in the closing days of Smith Barney, and what you’re seeing is the tail effect of that; with positive recruiting and more productive FAs, we’ll see an improvement in those client flows and clearly improvement in margin.”

In terms of other results for the MSSB wealth-management business, “We view this as a consolidated business. We’re already getting synergies quicker than we thought,” he adds.

“In terms of the revenues themselves what I will say [is that] we clearly had a weakening retail environment but net-net we do believe that with those revenues and results that we are on track for the integration plan as laid out,” says Kelleher.

In late October, Morgan Stanley Smith Barney announced plans to grow the number of advisors focusing on ultra-high-net-worth clients–with at least $20 million of assets–under the Morgan Stanley Private Wealth Management brand.

“The combination of Morgan Stanley’s well established Private Wealth Management division and Smith Barney’s leading Citi Family Office capabilities creates a strong platform for individuals and families of significant means. These clients have highly specialized wealth management and private banking requirements which we are uniquely positioned to fulfill,” says James Gorman, co-president of Morgan Stanley and chairman of Morgan Stanley Smith Barney.

Led by Michael Armstrong, managing director, Morgan Stanley Private Wealth Management will bring together about 500 highly trained private wealth advisors in 25 cities who will deliver a unique range of wealth management, asset management, private banking, capital markets and investment banking services to ultra-wealthy individuals and families in the United States, Latin America, Europe, Middle East and Africa, and Asia, according to the company.

In early November, six investment professionals were hired by the private-wealth management unit to serve ultra-high-net-worth families in Latin America.


A week after announcing that ex-Merrill leader Bob McCann had been hired to run UBS’ wealth management operations in the Americas, the Swiss-based bank says that this unit had a pre-tax profit of CHF 110 million, or about $106 million, in the third quarter of 2009. In addition, though, it continued to report negative net new money and a declining number of financial advisors.

The number of financial advisors in UBS Americas decreased by 653, or 8 percent, to 7,286. The loss of 379 FAs was due to the sale of 56 branches, sold to Stifel Nicolaus, and the loss of 274 advisors was related to slower recruiting and “the planned reductions of lower-producing financial advisors,” the company says.

On a year-over-year basis, UBS is down 1,059 advisors–680, if the 379 leaving through the Stifel Nicolaus acquisition are excluded. At the end of the third quarter of 2008, UBS Americas had 8,345 FAs.

Outflows of net new money in Wealth Management Americas increased to CHF 9.9 billion (about $9.5 billion) from a negative outflow of CHF 5.8 billion in the second quarter. The former Wealth Management U.S. business unit saw net new money outflows increase to CHF 8.6 billion from CHF 5.0 billion.

These flows were affected “by financial advisor attrition and reduced recruiting of experienced financial advisors,” explains UBS.

In terms of invested assets, the unit now has about $667 billion, down from about $735 billion a year ago. Client assets stand at $706 billion vs. $800 billion in the third quarter of 2008.

Wells Fargo Advisors

Wells Fargo says its wealth, brokerage and retirement operations include about 21,000 financial advisors, some 6,000 of whom have been classified as financial specialists in previous reports. These operations had net income of $244 million in the third quarter, down from $363 in the previous quarter.

“Revenue was $3.0 billion consistent with the prior quarter’s levels as the strong equity market recovery led to increases in client assets across the brokerage, wealth and retirement businesses, driving solid revenue growth, partially offset by lower realized gains on sales of securities available for sale in the brokerage business,” the company says.

In terms of the retail-brokerage business, client assets increased 8 percent to $1.1 trillion from the prior quarter, and managed account assets increased $23 billion, or 14 percent, including net inflows of $8 billion. Brokerage transactional revenue grew 2 percent.

Wealth management experienced deposit growth, with average balances up 8 percent from the prior quarter. Trust assets of $119 billion were up 7 percent.

Retirement plan assets of $271 billion increased $22 billion, or 9 percent,and IRA assets were $231 billion, a jump of $20 billion, or 9 percent, from the prior quarter.

“Trust and investment fees were up 15 percent annualized linked quarter, including strong growth in managed account fees, consistent with market trends, and modest growth in brokerage transaction revenue, overcoming typical seasonality,” explains Wells Fargo CFO Howard Atkins.

“Client assets in our wealth, brokerage and retirement business continued their year-long growth reaching $1.2 trillion this quarter and up 8 percent from second quarter,” he adds.

Wells Fargo says it is “on track to realize our objective of $5.0 billion in annual run-rate savings when we complete the integration in 2011, with about 30-40 percent of those savings now beginning to be realized in our expense run-rate,” explains Wells Fargo President and CEO John Stumpf. “We now expect to spend about $2.4 billion less in merger and integration costs than previously expected to achieve the run-rate savings …”


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