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August 27, 2013 at 08:00 AM
Earnings for the financial services sector improved an average of 65% in the quarter ended June 30, up from 53% in the prior quarter, according to data compiled by Reuters.
Sales for financial services firms moved up 25% on average in Q2, after moving up 20% in Q1. The sector’s 12-month sales growth rate is 18% on average, as of June 30.
The financial services sector’s earnings-per-share growth rate over the past five years was about 25%, Reuters says. Sales momentum averaged about half that, or 13%, for the same period.
Financial stocks, as measured by the Financial Select Sector SPDR (XLF) and the iShares Financial ETF (IYF). are up more than 21% this year vs. about 15% for the Dow Jones. The Market Vectors Bank and Brokerage ETF (RKH), however, has ticked up about 12%.
Some of the larger institutions had strong improvements in their quarterly results, while one remained in the red and another had negative earnings growth.
Here are 13 companies, ranked in terms of how they out- or underperformed their broker-dealer rivals.
(Check out last quarter’s winners and losers in 12 Best & Worst Broker-Dealers: Q1 Earnings at ThinkAdvisor.)
WORST
13th Place
INVESTORS CAPITAL (ICH)
Investors Capital saw its profits fall from $262,000, or $0.04 per share, in Q2 2012 to a net loss of $360,000, or $0.05 per share, in Q2 2013, for a total drop of $622,000 over the second quarter last year.
Total revenue, though, grew 11% to $23.08 million vs. $20.8 million in the year-ago period.
This company says that Q2’13 was the first quarter since September 2009 for total revenues to top $23 million. It attributes the increase to top-line growth of both commissions and advisory fees, which benefited from the firm’s practice management initiatives, attracting and recruiting new financial advisors, and improved financial market conditions.
Commission revenue climbed 12.8% to $18.14 million, compared with $16.09 million in the prior period. Improving financial markets also benefited advisory fee revenue, says the broker-dealer; it increased 8.1% to $4.44 million, vs. $4.11 million in the prior period.
Total expenses, however, increased $3.40 million or 16.7% to $23.75 million.
The firms says its affiliated financial advisors, based on a rolling 12-month period, had yearly average fees and commissions of $193,153, an increase of 13.7% over $169,934 for the prior rolling 12-month period.
“I’m very excited about our record first quarter revenue results,” said Timothy B. Murphy, president and CEO of Investors Capital, in a press release. “We’re seeing the fruits of recruiting and retaining high-quality advisors as well as the benefits that come from implementing strategic, organic growth initiatives.
“While pleased with our top-line growth, we are still challenged by the continued costs of product litigation and settlements, which have significantly impacted our operating and net income results for several reporting periods,” Murphy continued. “Management’s strategy for resolving these cases and stemming related costs are essential to improving our operating and net income results going forward.”
12th Place
LADENBURG THALMANN (LTS)
Ladenburg Thalmann Financial Services reported a net loss of $5.5 million or $(0.04) per share compared with a net loss of $5 million, or $(0.03) per share in the comparable 2012 period, for a total drop of $500,000.
The company said its second-quarter loss was magnified by a loss on extinguishment of debt of some $3.8 million related to the prepayment of $90.4 million of debt, as well as $1.8 million of amortization of retention loans related to its purchase of Securities America and interest expense of roughly $4.9 million.
Its second-quarter 2013 revenues were $193.9 million, a 19% increase from revenues of $163.4 million in the second quarter of 2012.
“We remain focused on additional opportunities to selectively grow our investment banking business and our independent brokerage and advisory platform,” said Richard Lampen, president and CEO. “We are enthusiastic about Ladenburg’s future prospects given our growing investment banking and research capabilities, robust institutional distribution and leading network of approximately 2,700 independent financial advisors.”
11th Place
RAYMOND JAMES (RJF)
Raymond James reported net income of $84 million, or $0.59 per share, up 7% from the year-ago quarter and 5% from the preceding period.
It also had net revenues of $1.11 billion in the most recent quarter, up 2% from the year-ago quarter but down 3% from the preceding quarter.
Excluding acquisition expenses of $13.4 million, non-GAAP net income was $92.5 million, or $0.65 per share, an increase of 2% from a year ago but down 4% from the prior quarter.
Analysts had expected the company to have earnings of $0.66 per share on sales of $1.11 billion.
“Most of our businesses performed as expected in the June quarter with the exception of fixed income. An upsurge in interest rates in June resulted in trading losses despite lower inventory levels,” said CEO Paul Reilly, in a press release.
The company said its Private Client Group “showed modest improvement over the preceding quarter.” PCG securities fees & commissions were $624.3 million as of June 30, a nearly 2% increase from $615.2 million as of March 31 and a jump of 8% from $576.3 million a year earlier.
Total revenue for the Private Client Group was $741.6 million vs. $726.8 million in the prior quarter and $684.7 million a year ago. Pretax net income for the unit, however, declined 12% from the prior quarter to $56.7 million, which represented an 8% year-over-year improvement.
The number of U.S. financial and investment advisors is 5,428, down slightly from 5,431 as of March 31 and a drop of 61 from 5,489 in the year-ago period. The number of advisors in the U.S., Canada and United Kingdom stands at 6,301 vs. 6,297 three months prior and 6,367 in June 2012.
Over the summer, Raymond James said it tapped four new regional directors to help boost its recruiting and advisor-related business results. PCG securities fees & commissions were $624.3 million as of June 30 vs. $615.2 million as of March 31 and $576.3 million a year earlier.
10th Place
STIFEL FINANCIAL (SF)
Stifel Financial had a 13% jump in its GAAP net income for the most-recent period: $29.4 million, or $0.40 per share, vs. $26.1 million, or $0.42 per share, a year ago.
“We are pleased to announce record revenues for the second quarter and for the first six months of 2013 in both the Global Wealth Management and the Institutional Group, especially against the challenging market conditions in the quarter,” Chairman and CEO Ronald J. Kruszewski said in a press release. “The merger with KBW continues to exceed our expectations, and we are gaining market share in the financial institutions space.”
The Global Wealth Management unit segment had pretax operating income of $78.9 million, up 29% from $61.0 million a year ago and a jump of nearly 14% from $69.5 million in the prior quarter. This unit represents about 57% of total revenue for the company.
The Private Client Group reported net revenue of $257.3 million, a 17% increase over the year-ago period and a 6% jump over the prior quarter. It accounts for 52% of total company revenue as of June 30.
In terms of brokerage revenue, the PCG unit had $161 million in Q2, a 12% year-over-year improvement and a 2% quarter-over-quarter increase. This represents 60% of the company’s total brokerage sales.
The number of PCG advisors grew by 6 in the most recent period and stands at 2,069. That is up 41 from June 2012.
Stifel says its total client assets are $150.6 billion, a jump of 15% from last year and 2.4% from the prior quarter.
9th Place
LPL FINANCIAL (LPLA)
LPL Financial boosted its profits 14% in the second quarter: The independent broker-dealer said its net income was $45.1 million, or $0.42 a share, up from $39.5 million, or $0.35 a share, last year.
Adjusted earnings were $65.9 million, or $0.61 per share, vs. $55 million, or $0.49 per share, a year ago, topping analysts’ estimates. Total revenue grew 12% from last year to $1.02 billion, with recurring revenue representing the majority — nearly 66% — of net revenue in the second quarter.
“Our second-quarter top-line results mark the strongest quarter in LPL’s history with net revenues surpassing $1 billion,” said Chairman and CEO Mark Casady in a press release.
The number of financial advisors affiliated with the IBD grew by 224 — or nearly 2% — year over year to 13,409. The firms added 32 reps in the most recent period.
Total client assets expanded 12% from last year and nearly 1% from the first quarter to $396.7 billion. Assets in fee-based accounts improved about 19% from a year ago and roughly 2% from last quarter to $132.4 billion.
Advisory assets in the company’s fee-based platforms were $132.4 billion at June 30, 2013, up 18.9% from $111.4 billion at June 30, 2012.
Commission revenue increased close to 14% year over year, “reflecting improved commissions per advisor and the addition of new advisors,” the company says, while advisory revenue grew 11.1%, thanks to “strong net new advisory asset flows and overall improved market levels.”
Assets under custody on LPL’s platform for independent RIAs jumped almost 67% from last year and 6% from last quarter to nearly to $50 billion managed by 215 affiliated independent RIA firms, compared with about $30 billion and 166 independent RIA firms a year ago and some $47 billion and 199 firms as of March 31.
The percentage of assets administered by LPL on this platform now tops 36% of the firm’s total assets vs. 30% about a year ago.
8th Place
WELLS FARGO (WFC)
Wells Fargo, currently the biggest U.S. mortgage lender, saw its second-quarter profit grow 19.5%. Net income rose to $5.52 billion, or $0.98, from $4.62 billion, or $0.82
Revenue, though, expanded just 0.5% to $21.4 billion from $21.3 billion.
“Wells Fargo again demonstrated an ability to grow during a dynamic economic and interest-rate environment,” the bank’s chairman and CEO, John Stumpf, said in a statement.
Wells Fargo’s Wealth, Brokerage and Retirement reported revenue of close to $3.3 billion, up 10% from the year-ago period and 2% from the prior quarter, partly due to higher asset-based fees, the bank says.
Net income rose 27% from last year and 29% from last quarter to $434 million.
The retail brokerage reported client assets of $1.3 trillion, up 9% from last year. Managed accounts grew 19% to $52 billion, “driven by strong net flows and market performance,” the bank notes.
Wells’ wealth management group said it had client assets of $203 billion as of June 30, up 3% from the prior year. Also, retirement IRA assets grew 12% year over year to $315 billion, while institutional retirement plan assets expanded 11% to $277 billion.
7th Place
CITIGROUP (C)
Citigroup reported a stronger-than-expected 26% rise in adjusted quarterly profits thanks to stronger home prices, which reduced mortgage losses, and better trading revenue.
Adjusted net income rose to $3.89 billion, or $1.25 per share, in the second quarter, from $3.08 billion, or $1 per share, a year earlier. (The adjusted results exclude changes in the value of the company’s debt.)
Adjusted revenue jumped 8% to $20 billion. Sales in the fixed-income unit improved 18% to $3.37 billion, and equity market revenue grew 68% to $942 million.
6th Place
5th Place
4th Place
3rd Place
2nd Place
BEST