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Technology > Investment Platforms > Turnkey Asset Management

Wealth Groups Share Plans, ‘Q4 Results

By Janet Levaux

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Morgan Stanley, which reported a drop in its fourth-quarter net income, has outlined aggressive plans to boost its wealth-management results—namely a profit margin target of 22% to 25% by year-end 2015.

In the fourth quarter, the company had net revenues of $7.8 billion vs. $7 billion a year ago. The wealth management unit produced $3.73 billion in revenue in the quarter, up from $3.33 billion a year earlier.

Net income overall fell to $133 million, or $0.07 per share, from $568 million, or $0.29, in the year-ago quarter. Excluding one-time items, such as $1.2 billion in funds set aside for potential legal expenses, the bank earned $0.50 per share, beating analysts’ estimates.

“Our fourth-quarter results demonstrated the consistency embedded in our business model, as revenues increased year-over-year in all three of our business segments,” said Chairman & CEO James Gorman, in a statement. “We look forward to further progress on our strategic goals as we move into 2014 with strength and momentum.”

Morgan Stanley’s wealth management results for the latest period included a pre-tax margin of 19%, or 20% excluding a charge. (Rival Bank of America-Merrill Lynch’s wealth-management unit had a profit margin of 26.6% in the fourth quarter.)

Morgan Stanley has had to fund costly IT and other projects to integrate the Smith Barney franchise. It also had to buy Citigroup’s share of the venture.

The unit’s 2013 margin was 18% vs. 10% in 2011 and 7% in 2009. Gorman sees the unit improving its results via cost discipline and revenue growth.

Wealth management should benefit from growing deposits and net interest income. Plus, the bank plans to boost lending to clients via securities-based credit lines, for instance, and mortgage loans and home-equity products.

The wealth management unit ended the year with client assets of $1.9 trillion. Fee-based assets, 37%, were nearly $700 billion, while fee-based asset flows were close to $52 billion for the year.

Its advisors have average client assets of $116 million, and average annualized revenues per advisor of $905,000 vs. $848,000 in Q3’13 and $104,000 in Q4’12. Morgan Stanley says it has 16,456 advisors—up 104 from a year ago but down 61 from the third quarter.

BofA-Merrill

Bank of America says its fourth-quarter 2013 profits more than tripled, rising to $3.44 billion, or $0.29 per share, from $732 million, or $0.03, a year earlier. Its full-year net income more than doubled to $11.4 billion.

Revenue improved 14% to $22.3 billion, excluding accounting charges. “We still have not approached the true earnings potential of Bank of America,” CEO Brian Moynihan said in a call with equity analysts.

The bank says that losses in its mortgage unit were $1.1 billion in Q4’13 vs. $3.7 billion Q4’12. It made $11.6 billion in home loans in the most recent period, down close to 50% from the prior quarter. Plus, legal expenses jumped to $2.3 billion in the fourth quarter from $916 million in the year-ago period.

The number of advisors in the Global Wealth and Investment Management unit, which includes Merrill Lynch, continues to shrink, though the reps’ average fees and commissions are growing. BofA had 15,316 financial advisors as of Dec. 31, vs. 16, 611 a year ago and 15,624 in the prior quarter.

When advisors working on the consumer and business banking operations are excluded, the number of BofA stands at 13,771 vs. 14,915 at the end of 2012 and 14,039 as of Sept. 30. (BofA also has about 2,000 US Trust wealth professionals.)

The 13,771 traditional advisors had yearly production of $1.005 million in 2013, up from $902,000 in 2012. For Q4’13, average fees and commissions were $1.039 million vs. $1 million in Q3’13.

The wealth-management group had revenue of $4.5 billion in Q4’13, a 7% increase from the year-ago period. Its pretax margin was 26.6%. For the full year, revenue was $17.8 billion, and the pretax margin was 26.4%, up nearly 11% from the prior quarter and close to 6% from the year-ago quarter.

Asset management fees were $1.8 billion in Q4’13, a year-over-year increase of 15%. Long-term asset flows were $9.4 billion for Q4 and $48 billion for the full year.

Client balances of $2.37 trillion increased $83 billion, or 3.6%, for the quarter. Deposit balances moved up quarter over quarter by 1.4% to $245 billion, while loan balances jumped 1.3% to $119 billion.

Wells Fargo

Wells Fargo had $21.9 billion in annual earnings, a 16% improvement from 2012. In the fourth quarter, Wells Fargo saw its net income improve 10% from last year, narrowly topping analysts’ estimates.

“The fourth quarter of 2013 was very strong for Wells Fargo, with record earnings, solid growth in loans, deposits and capital, and strong credit quality,” CFO Tim Sloan said in a statement. “We also grew both net interest income and noninterest income during the quarter, despite a challenging rate environment and the expected decline in mortgage originations.”

Still, the California-based bank, which is the largest U.S. home lender, says its fourth-quarter mortgage-banking income drop by almost half from a year ago to $1.57 billion.

Its Wealth, Brokerage and Retirement unit, though, improved its results in the fourth quarter, with income growing about 40% year over year and 9% from Q3 to $491 million. Sales for the unit expanded 11% from a year ago and 4% from Q3 to $3.4 billion.

The bank notes that it had “strong growth in asset-based fees, as well as higher net interest income and higher gains on deferred compensation plan investments (offset in compensation expense).”

The retail brokerage held $1.4 trillion in client assets, up 12% year over year from $1.2 trillion. Managed-account assets increased $71 billion, or 23% from a year ago “driven by strong market performance and net flows.”

Overall, its wealth-management operations include 18,608 financial advisors, down slightly from 18,632 in Q3 and 18,662 a year ago. These numbers include 15,280 traditional advisors and independent advisors working in its FiNet channel, as well as 3,328 licensed bankers.

UBS

UBS says its fourth-quarter profit rose to 917 million Swiss francs ($1.02 billion), beating analysts’ estimates with a strong turnaround from a loss of 1.9 billion francs a year ago, when it was fined for trying to rig global interest rates. It benefitted from a tax gain of 470 million Swiss francs.

As a result, UBS said it may boost its 2013 dividend to 25 centimes a share from 15 centimes, about 30% of the bank’s full-year net income of 3.17 billion francs. UBS also expanded its 2013 bonus pool, which included deferred pay, by 28% to 3.2 billion Swiss francs.

News for UBS’ wealth management operations in the Americas (WMA) was also upbeat. The group’s sales were $1.85 billion, up 5% from the earlier quarter and 9% from a year ago.

“In 2013, WMA delivered on our goals of $1 billion in adjusted pretax profit and $1 million in annualized revenue per financial advisor while invested assets rose to $970 billion—all record levels of performance,” said UBS Group CEO Sergio P. Ermotti, in a statement. “Coupled with our 14th consecutive quarter of positive net new money, WMA’s results are further proof that our strategy is working.”

UBS says that its advisors had an average assets of $136 million and average production of roughly $1.04 million, up 5% from $994,000 in 3Q’13 and up 8% from $967,000 in 4Q’12. The full-year 2013 average production level was $1.001 million.

The group’s advisor headcount stood at 7,137, the same as in 3Q’13 and up 1% from 7,059 in 4Q12.

The UBS unit attracted $4.9 billion in net new money in the quarter (excluding interest and dividends), up from $2.1 billion in Q3 but down from $8.8 billion in Q4’12. Including interest and dividends, NNM was $14.3 billion vs. $7.5 billion last quarter and $16.7 billion a year ago.

“We’re pleased with the progress this business has made in recent years,” said UBS Group CFO Tom Naratil in a statement, “and with invested assets of $1 trillion, pretax profits of a billion and FA productivity around $1 million, we’re also excited about its future.”

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