Earnings for the financial services sector improved an average of 29% in the fourth quarter of 2013, a small improvement from a 23% earnings jump in the third quarter, according to data compiled by Reuters.
Sales for financial services firms improved 22% on average in Q4, the same rate as in the prior quarter. The sector’s 12-month sales growth rate is 18% on average, as of Feb. 25.
The financial services sector’s earnings-per-share growth rate over the past five years ticked up slightly to 26% in late-February from 25% three months ago, Reuters says.
Financial stocks, as measured by the Financial Select Sector SPDR (XLF), are up 25% for the past 12 months, while the iShares Financial ETF (IYF) has ticked up 24%. Both ETFs though are down roughly 2% year to date.
(Check out 13 Best & Worst Broker-Dealers: Q3 Earnings on ThinkAdvisor.)
That puts the financial benchmarks ahead of the Dow Jones so far in 2014 (-3%) and for the past 12 months (17%).
Some larger institutions had strong improvements in their quarterly results in the period ended Dec. 31, but several of them also experience sizeable declines in net income.
Here are 12 companies, ranked in terms of how they out- or underperformed their broker-dealer rivals.
INVESTORS CAPITAL (ICH)
Independent broker-dealer Investors Capital, set to be acquired by RCS Capital (RCAP), posted a loss of $286,000 for the period ended Dec. 30 vs. net income of $134,000 a year ago. Still, this big drop in net income — $420,000, or 377% as calculated by Reuters — was an improvement from the quarter ended Sept. 20, when ICH had a net loss of $781,500.
Total revenue for the independent broker-dealer, though, grew about 20% year over year to $25 million.
Its sales boost was mainly due “to top-line growth of both commissions and advisory fees organically through targeted practice management initiatives, attracting and recruiting new financial advisors, and improved financial market conditions,” the company says.
“We achieved our largest quarterly revenue result in company history, our practice management initiatives continue to have a tangible effect on increasing advisor production, recruiting is robust, and advisor retention by delivering 5-star service every day remains high,” said President and CEO Timothy B. Murphy, in a statement. “Though the firm posted a net loss, I am encouraged by the fact that our operating loss was largely attributed to the merger agreement between RCAP and ICH, a positive development that I believe will tremendously benefit all stakeholders involved upon completion.”
RCS Capital is led by Executive Chairman Nicholas Schorsch, a veteran real-estate investor.
Investors Capital’s average yearly revenue (fees and commissions) per advisor rose to about $207,500, an increase of 16% from about $179,400 for the prior 12 months.
MORGAN STANLEY (MS)
Morgan Stanley reported a 77% drop in net income for the quarter, one period after a jump in net income of roughly 80%.
Its earnings 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 that had to be set aside for potential legal expenses, the bank earned $0.50 per share, beating estimates.
The wirehouse 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.
“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.”
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.
Morgan Stanley says it has 16,456 advisors — up 104 from a year ago but down 61 from the third quarter.
AMERIPRISE FINANCIAL (AMP)
Ameriprise Financial reported a drop in net income of 23% to $298 million, or $1.47 per share, vs. $388 million, or $1.80 a share, last year. Operating earnings, though, were $378 million, up 3%.
This was a sharp decline from its third-quarter performance, when its net income rose nearly 120% to $381 million.
Total net sales were $2.95 billion vs. $2.67 billion in the year-ago quarter, while operating revenues jumped 8% to $2.8 billion, thanks to “strong fee-based business growth from client net inflows and increased client activity, as well as market appreciation, which more than offset the pressure from continued low interest rates,” the company says.
“We had a very good quarter, and a terrific year,” said Chairman & CEO Jim Cracchiolo in a statement. “Our advisory and asset management businesses are leading our growth. Overall, assets are up significantly across the firm and we have particular strength in our Advice & Wealth Management business, with robust client net inflows and good growth in advisor productivity.”
The wealth management unit posted a 36% jump in pretax operating earnings to $162 million, and a 35% increase in full-year operating earnings to $598 million. When its former banking operations are excluded, full-year operating earnings soared 52%.
Total retail client assets expanded 16% to $409 billion.
Its total headcount of advisors at year-end 2013 was 9,716—down from 9,767 in late 2012. It now has 2,205 employee advisors versus 2,318 12 months before, and 7,511 independent advisors versus 7,449 in late 2012.
Ameriprise’s advisors improved their overall average level of annual fees and commissions, or production, by 11% year over year to $440,000 per advisor as of Dec. 31. Its advisors have average assets of $42.1 million.
GOLDMAN SACHS (GS)
Goldman Sachs’ Q4 net income dropped 19% to $2.33 billion, or $4.60 a share, from $2.89 billion, or $5.60, a year earlier. That surpassed the $4.18 average estimate of 25 analysts in a Bloomberg survey.
Its revenues weakened 5% from last year to hit $8.8 billion as of Dec. 30.
Still, Bloomberg reported, CEO Lloyd Blankfein is keeping a lid on compensation costs and relying on investment banking revenue amid a slowdown in trading, the business he helped run until becoming president in 2004. The firm cut the percentage of revenue set aside for pay to the second-lowest level since it became a public company in 1999.
Compensation, the firm’s biggest expense, was $2.19 billion as the bank lowered its full-year ratio of compensation to revenue to 37% from 38% for 2012. Return on equity, a gauge of profitability, was 11% for the year, up from 10.7% a year earlier.
JPMORGAN CHASE (JPM)
JPMorgan, last quarter’s worst performer due to a loss of $380 million, saw its profits drop 7% in Q4’13 to $5.3 billion from last year’s $5.3 billion.
Revenue for the quarter was $24.1 billion, down 1% compared with the prior year.
Net income for2013 was $17.9 billion, compared with $21.3 billion for the prior year. Earnings per share were $4.35 for 2013, compared with $5.20 for 2012. Revenue for 2013 was $99.8 billion, flat compared with 2012 revenue of $99.9 billion.
JPMorgan CEO Jamie Dimon says the bank is glad “to have put some significant issues behind us this quarter,” noting in a statement that “it was in the best interests of our company and shareholders for us to accept responsibility, resolve these issues and move forward.”
Earlier this year, the CEO shared the news that JPMorgan agreed to pay some $20 billion for legal settlements in 2013. Much of the fourth-quarter expense was tied to its failure to report suspicions of fraud by Ponzi-schemer client Bernard Madoff.
WELLS FARGO (WFC)
Wells Fargo said its fourth-quarter net income was $5.6 billion, up 10% from a year ago; diluted earnings per share were $1, up 10%.
Revenue in the period was $20.7 billion, compared with $21.9 billion a year ago.
“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.
(CNBC and others reported in mid-February that Wells Fargo is tiptoeing back into the subprime mortgage market.)
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. Managed account assets increased $71 billion, or 23% from a year ago “driven by strong market performance and net flows.”