Earnings for brokerage firms and investments banks had a 24% jump in the second quarter of 2014, a sizeable rise from its 17% earnings increase in the first quarter, according to data compiled by Reuters.

The group’s earnings has risen 25% over the past five years.

Sales for financial services firms moved ahead 28% in Q2, up from 22% last year. The sector’s average five-year sales growth rate is 13%.

Financial stocks, though, as measured by the Financial Select Sector SPDR (XLF), have gained 6.5% in the first 8 months of 2014, lagging the S&P 500’s roughly 8% gains but outperforming the Dow Jones’ 3% uptick; the iShares Financial ETF (IYF) is up 6% as of Sept. 1.

But many of the larger institutions continue to see litigation expenses rise and sales in fixed-income products and services decline.

(Check out last quarter’s winners and losers: 12 Best & Worst Broker-Dealers: Q1 Earnings)

Here are 12 companies, ranked in terms of how they out- or underperformed their broker-dealer rivals in the second quarter.

WORST

12th Place

Brian Moynihan, President and CEO of Bank of America. (Photo: AP)

BANK OF AMERICA (BAC)

Bank of America saw its second-quarter profits tumble 43% due to $4 billion spent on litigation, including a $8.5 billion mortgage settlement with AIG

Revenue in the quarter declined 4% to $22 billion as expenses climbed 16% to $18.5 billion.

Revenue from trading fixed income, currencies and commodities rose 5.2% to $2.37 billion, while equities trading revenue slipped 14% to $1.03 billion from a year earlier.

CEO Brian Moynihan said during a May investor conference that Justice Department probes are the biggest legal issue it must resolve. The severity of the mortgage hangover, which caused a $276 million first-quarter loss, and the time it has consumed are the biggest disappointments of his tenure, Moynihan added.

On the upside, Bank of America-Merrill Lynch’s global wealth operations reported a pre-tax profit of 25% for the second quarter – its sixth consecutive period of 25%-plus results.

Its level of pre-tax income in the period was $1.15 billion on net revenues of $4.56 billion; Merrill’s sales represented $3.80 billion or about 83% of the broader group’s results, which includes the operations of U.S. Trust.

BofA-Merrill has a total of 15,560 reps, with about 13,845 working under the Merrill Lynch brand. Their average productivity is $1.06 million per rep per year; experienced reps produce $1.34 million, the company says.

Its level of client assets is $2 trillion for Merrill Lynch and $2.5 trillion for BofA-Merrill (including U.S. Trust).

Net asset flows in Q2 were $12 billion, a slowdown from the prior quarter. 

11th Place

Jamie Dimon, CEO of JPMorgan Chase (Photo: AP)

JPMORGAN (JPM)

JPMorgan posted second-quarter profit that beat estimates as fixed-income trading revenue fell less than analysts expected.

Net income, though, declined close to 8% to $5.99 billion, or $1.46 a share, from $6.5 billion, or $1.60, a year earlier. Earnings excluding some items were $1.59 a share, topping the $1.31 average estimate of 29 analysts surveyed by Bloomberg. Revenue slid 2.3 percent to $25.4 billion from a year earlier.

Quarterly results were overshadowed by questions about the health of Chief Executive Officer Jamie Dimon, who said he would undergo radiation and chemotherapy for throat cancer.

JPMorgan warned investors in May to expect Wall Street’s trading slump to continue through the second quarter, saying that fixed income and equities trading revenue could drop 20% from a year earlier.

Fixed-income clients are making fewer bets amid low volatility and the Federal Reserve’s move to slow bond purchases, Daniel Pinto, 51, JPMorgan’s investment banking chief, said that month.

There were encouraging signs toward the end of the second quarter, including an improvement in “some markets activity,” Dimon said in today’s statement. While client activity jumped in June, it didn’t carry over into July, Chief Financial Officer Marianne Lake said on the media call.

Fixed-income trading revenue fell 15% from a year earlier to $3.5 billion, beating the $3.14 billion average of analysts’ estimates compiled by Bloomberg. Equity-trading revenue dropped 10% to $1.2 billion on lower derivatives sales, matching the analysts’ estimates.

JPMorgan’s total revenue of $25.4 billion surpassed the $23.9 billion average estimate of analysts with better-than-predicted results in trading and investment banking.

10th Place

Mark Casady, CEO of LPL Financial.

LPL FINANCIAL (LPLA)

LPL Financial said its second-quarter net income fell about 4.4% from a year ago to $43.09 million — mostly related to unforeseen regulatory costs that increased expenses.

Earnings per share remained flat year-over-year at $0.42 per diluted share, or adjusted earnings of $0.61 per share, for the quarter.

Analysts polled by Thomson Reuters expected the company to report profit per share of $0.61 for the quarter. Earnings per share benefited from a net revenue increase of 7.2%, reporting $1.09 billion in second quarter 2014 compared to $1.01 billion in second quarter 2013.

“We are focused on creating a smarter, simpler more personal LPL to drive productivity and efficiency in our expense structure,” LPL Financial CFO Dan Arnold, stated in a press release. “This quarter we continued to make progress implementing this strategy despite the sequential increase in core [general and administrative] expense primarily related to the resolution of regulatory issues. For the year we remain positioned to lower our overall expense growth rate compared to the prior two years while investing in the company.”

The independent broker-dealer’s core general and administrative expenses were $106 million for second quarter 2014, up 26% year over year.

Roughly 80% of the regulatory fines were rounding errors in transactions that primarily use paper-based products, said Chairman and CEO Mark Casady during the firm’s earnings call. In an effort to mitigate future regulatory costs, Casady added that the company has grown its legal and compliance department by 41%.

Advisory and brokerage assets rose 17.3% year-over-year to a record $465.4 billion, which Casady said in a press release was a result of “positive trends in advisor productivity and asset accumulation.”

“In addition, our higher-margin advisory business continued to attract retail assets under custody and expand at a faster pace than our brokerage business, increasing 26% year over year to $167 billion,” added Casady.

Average yearly fees and commissions per rep are about $251,000 vs. $252,000 in the prior period and $241,000 a year earlier. Commissions per rep are about $155,000 for second-quarter 2014.

The company has 13,840 affiliated advisors, up from 13,409 a year ago.

Assets under custody on LPL Financial’s Independent RIA platform grew 56.6% to $78 billion as of June 30. These results represent 282 independent RIA firms, compared with $49.8 billion and 215 independent RIA firms a year ago.

Revenue generated from LPL’s cash sweep programs declined 20.1% to $24.8 million in the second quarter of 2014 compared with $31.0 million in the year before.

9th Place

Lloyd Blankfein, CEO Goldman Sachs. (Photo: AP)

GOLDMAN SACHS (GS)

Goldman Sachs posted second-quarter profits that beat analysts’ estimates as fixed-income revenue fell less than many analysts predicted and investment banking fees climbed. Net income at the New York-based firm rose 5% to $2.04 billion, and revenue rose 6% to $9.13 billion.

Net income climbed 5% to $2.04 billion, or $4.10 a share, from $1.93 billion, or $3.70, a year earlier, the New York-based company said today in a statement. That beat the $3.09 average estimate of 25 analysts in a Bloomberg survey.

CEO Lloyd Blankfein has pledged not to overreact to a trading slump that’s now in its fifth year as he positions the firm to pick up market share from other banks that are pulling back. He is also relying on underwriting stocks and bonds, which accounted for 14% of revenue in the second quarter, the highest portion since 2000.

First-half investment-banking fees saw a sizeable improvement

Revenue rose 6% to $9.13 billion. Compensation, the firm’s biggest expense, climbed to $3.92 billion, or 43% of revenue, the same percentage as a year earlier.

The biggest surprise compared to many analysts’ estimates was the gain on the firm’s equity investments in its Investing and Lending segment, which totaled $1.25 billion. That was almost double the $650 million expected by Barclays Plc analyst Jason Goldberg.

Second-quarter revenue from investment banking, the business run globally by Richard Gnodde, David Solomon and John Weinberg, climbed 15% to $1.78 billion.

The Goldman Sachs figure included $506 million of financial-advisory revenue, including fees for takeover advice, an increase of 4% percent. Revenue from underwriting climbed to $1.28 billion in the quarter, including $730 million from debt underwriting and $545 million for equity offerings.

8th Place

John Stumpf, CEO of Wells Fargo. (Photo: AP)

WELLS FARGO (WFC)

Wells Fargo reported net income in the second quarter of $5.7 billion, or $1.01 per share, up close to 4% from $5.5 billion, or $0.98 per share, a year ago, in line with analysts’ expectations.

Analysts polled by Thomson Reuters expected per-share earnings of $1.01 on revenue of $20.84 billion.

For the first six months of 2014, Wells Fargo reported the net income was $11.6 billion, or $2.06 per share, up from $10.7 billion, or $1.90 per share, for the same period in 2013.

“Our results also reflected strong credit quality driven by an improved economy, especially the housing market, and our continued risk discipline,” said Chairman and CEO John Stumpf in a statement. “We are committed to both maintaining strong capital levels and returning more capital to our shareholders.”

While profit is up nearly 4% from last year, revenue for the second quarter fell slightly compared to the second quarter 2013, to $21.1 billion from $21.4 billion a year ago. But this quarter’s revenue is up from $20.6 billion in first quarter 2014.

Wells Fargo’s Wealth, Brokerage and Retirement unit reported net income of $544 million for the second quarter, a 25% increase from a year ago and a 15% increase from the first quarter.

WBR had $3.6 billion of revenue in the second quarter, up 9%  from a year ago and 2% from the prior quarter, as “increased asset-based fees and higher gains on deferred compensation plan investments (offset in compensation expense) were partially offset by lower brokerage transaction revenue,” the bank said.

The retail brokerage had client assets of $1.4 trillion, up 12% from the prior year, and managed-account assets increased $78 billion, or 24% from the prior year. The bank reported strong loan growth, with average balances up 19% from a year ago on growth in first mortgage and security-based lending.

7th Place

Sergio Ermotti, CEO of UBS. (Photo: AP)

UBS (UBS)

UBS reported that its profit improved by 15% year-over-year to 792 million Swiss francs ($876 million) in the second quarter, beating estimates despite muted client activity and charges resulting from litigation and regulatory matters.

Revenues in the quarter dropped about 3% from last year to roughly 7.14 billion Swiss francs, impacted by “low volumes partly offset by mandate growth,” the company said.

UBS’ Wealth Management Americas group saw its profits fall 3% year-over-year and 13% from the prior period to $246 million. Wealth Management Americas invested assets, though, passed $1 trillion for the first time.

Revenue for the U.S.-based unit was about 1.68 billion Swiss francs, staying pretty much flat from a year ago.

Net new money outflows during the second quarter were $2.5 billion, compared with net inflows of $2.1 billion in prior quarter, according to the company “primarily reflecting client withdrawals associated with seasonal income tax payments.”

Invested assets for the Wealth Management Americas unit stand at $1.01 billion overall, up 14% from $892 million a year ago. Invested assets per financial advisor increased to $143 million, up from $139 million in the prior quarter.

Annualized revenue per financial advisor is roughly $1,068,000 vs. $1,037,000 in the first quarter.

6th Place

Jim Cracchiolo, CEO of Ameriprise Financial.

AMERIPRISE FINANCIAL (AMP)

Ameriprise Financial reported second-quarter net income of $374 million, or $1.91 per diluted share, up 24% from a year ago but falling short of analyst estimates of $2 per share. Operating net revenues were up 6% year-over-year with a reported $2.9 billion in Q2.

Ameriprise delivered another quarter of strong financial results with particular strength in our Advice and Wealth Management business,” said Jim Cracchiolo, chairman and chief executive officer, in a press release. “As we serve our clients and advisors, we continue to generate good revenue and earnings growth and posted another record high operating return on equity, ending the quarter at nearly 22%.”

Combined, the company reported that Advice & Wealth Management and Asset Management generated more than 60% of company pretax operating earnings.

Pretax operating earnings for Advice & Wealth Management increased 29% year-over-year to $194 million in second-quarter 2014, which according to the report reflected “robust revenue growth and expense controls.”

Average annualized fees and commissions per advisor stood at $468,000, a jump of 14% from last year’s $411,000, which was driven by client net inflows, client acquisition and market appreciation, the company said. Mutual fund wrap flows for the wealth group were $3 billion vs. $3.1 billion a year ago, a 3% decline.

The second-quarter 2014 pretax operating margin reached a record high of 16.2% compared with 13.9% a year ago.

5th Place

Michael Corbatt, CEO of Citigroup. (Photo: AP)

CITIGROUP (C)

Citigroup reported a stronger-than-expected 26% rise in adjusted quarterly profit as stronger home prices reduced losses on mortgages and trading revenue rebounded.

Adjusted net income rose to $3.89 billion, or $1.25 per share, in the second quarter, from $3.08 billion, or $1.00 per share, a year earlier, the third-largest U.S. bank by assets said.

The adjusted results excluded the positive impact of changes in the value of the company’s debt.

Analysts on average had expected earnings of $1.17 per share, excluding some items, according to Thomson Reuters I/B/E/S.

Revenue from fixed income markets grew 18% to $3.37 billion, while equity market revenue jumped 68% to $942 million.

Citigroup’s net credit losses declined to $2.61 billion from $3.49 billion as higher house prices lifted the value of the home mortgage assets the company has held since the financial crisis.

Earnings were also helped by the company’s drawdown of $784 million of reserves that it had taken earlier against loan losses that have not materialized. (The draw follows a reserve release of $1.01 billion in the year-earlier quarter.)

4th Place

Paul Reilly, CEO of Raymond James Financial.

RAYMOND JAMES (RJF)

Raymond James Financial (RJF) reported record net profits of $122.7 million and record net revenues of $1.2 billion in the quarter ended June 30 — with earnings per diluted share increasing 44% from a year ago to $0.85 per share.

Part of that increase in earnings per share was attributed to $13 million of acquisition-related expenses in the year-ago quarter, but excluding those expenses, the earnings per share still increased 31% from a year ago to $0.65.

Analysts polled by Thomson Reuters had expected earnings of $0.72 per share on revenue of $1.18 billion.

Raymond James’ quarterly revenues rose 9% from a year ago and 3% from last quarter.

“We are very proud of our performance for the first three quarters of the fiscal year, as we generated a 15% pretax margin on net revenues and delivered an 11.9% annualized return on equity to our shareholders, essentially reaching our targets for the current market and interest rate environment sooner than expected.” said CEO Paul Reilly in a press release.

Raymond James’ Private Client Group had a record quarterly pretax income of $81.5 million, a 39% increase on a year-over-year basis and a 6% increase from the preceding quarter. Quarterly net revenues were up 10% from a year ago with the private client group reporting $816.9 million in quarter ending June 30.

Total assets under administration for PCG reached a record $454 billion, up 17% from a year ago and 5% from the preceding quarter. Assets in fee-based accounts jumped 27.5% to $168 billion, helping the segment’s recurring revenues grow to over 70% of the segment’s total revenues.

The total number of advisors in the PCG stood at 6,251 as of June 30, up 49 from the most-recent quarter. The firm’s U.S.-based independent channel has about 3,320 advisors, while its employee channel has 2,455.

3rd Place

Ronald Kruszewski, CEO of Stifel Financial.

STIFEL FINANCIAL (SF)

Stifel Financial had net revenues of $560.1 million, an increase of 14% compared with the year-ago quarter. Its net income rose 48% to $43.6 million, or $0.58 per share, from $29.4 million, or $0.40 per share, a year ago.

“We are pleased with the performance of our private client and investment banking groups, which contributed nicely to our results in a challenging market environment,” said Chairman and CEO Ronald J. Kruszewski in a statement.

“Our global wealth management segment posted record net revenues and record pre-tax operating contributions in the quarter,” he added. “Investment banking benefitted from strong equity capital raising and advisory activity. Our institutional brokerage results are reflective of lower industry volumes.”

During the second quarter, Stifel announced two acquisitions: Oriel Securities, a London-based stockbroking and investment banking firm, and Legg Mason Investment Counsel.

Brokerage revenues, defined as commissions and principal transactions revenues, were $278.4 million, a 5% increase compared with the second quarter of 2013 and a 3% decrease compared with the first quarter of 2014.

Global wealth management brokerage revenues were $161.8 million, a 1% increase compared with the second quarter of  2013 and flat compared with the first quarter of 2014.

Institutional equity brokerage revenues were $62.1 million, a 3% decrease compared with the second quarter of 2013 and a 6% decrease compared with the first quarter of 2014.

Institutional fixed income brokerage revenues were $54.5 million, a 33% increase compared with the second quarter of 2013 and a 7% decrease compared with the first quarter of 2014.

2nd Place

James Gorman, CEO of Morgan Stanley. (Photo: AP)

MORGAN STANLEY (MS)

Morgan Stanley beat second-quarter estimates, reporting total sales of $8.6 billion and net income from continuing operations of $1.94 billion, or $0.94 per share, vs. $980 million, or $0.43 per share, a year ago—a 98% profit improvement.

(It notes that last year’s EPS included “a negative adjustment” of about $151 million, or $0.08 per share, related to the purchase of a final stake in the Morgan Stanley Smith Barney joint venture.)

Excluding an accounting adjustment tied to the firm’s own debt and a tax benefit, profit was 60 cents a share, topping the 56-cent average estimate of 24 analysts surveyed by Bloomberg.

As for wealth management, the wirehouse’s pre-tax profit came in at 21%, a milestone for the unit, but still behind that of rival Bank of America-Merrill Lynch, which reported a pre-tax profit on Wednesday of 25% for the second quarter – its sixth consecutive period of 25%-plus results.

“Our quarterly results demonstrated solid performance, despite a muted operating environment,” said Morgan’s Chairman and CEO James Gorman, in a statement. “We are seeing momentum across our businesses, with particular strength in Investment Banking, Equity Sales & Trading and Wealth Management – where profit margins hit 21% for the first time since the founding of the [joint venture] and assets entrusted to us by clients reached $2 trillion.”

Still, the unit has room to catch up when it comes to other measures, as a deeper look at the Q2 numbers reveals.

Morgan Stanley’s wealth unit had pre-tax income of $767 million on net revenues of $3.7 billion. BofA’s group reported pre-tax income of $1.15 billion on net revenues of $4.56 billion; Merrill’s sales represented $3.80 billion or about 83% of the broader group’s results, which includes the operations of U.S. Trust.

Morgan Stanley has 16,316 advisors who produce an average of about $908,000 per rep in yearly fees and commissions.

BEST

1st Place

Dr. Philip Frost, Chairman, Ladenburg Thalmann Financial Services, Inc.

LADENBURG THALMANN (LTS)

While its profits may not be as sizeable as some larger financial groups, Ladenburg Thalmann demonstrated a substantial turnaround in the second quarter. Since you can’t derive a percentage gain from less than zero–if you could it’d be a whopping jump.

Net income was $2.9 million, compared to net loss of $5.5 million in the second quarter of 2013. The net loss available to common shareholders, after payment of preferred dividends, was $0.8 million or $(0.00) per basic and diluted common share for the second quarter of 2014, as compared to net loss available to common shareholders of $6.6 million or $(0.04) per basic and diluted common share in the comparable 2013 period.

The second quarter 2014 results included about $5.9 million of non-cash charges for depreciation, amortization and compensation, $1.8 million of amortization of retention loans related to the Securities America acquisition and $1.6 million of interest expense, while the second quarter 2013 results included some $5.2 million of non-cash charges for depreciation, amortization and compensation, $1.8 million of amortization of retention loans related to the Securities America acquisition, $4.9 million of interest expense and $3.8 million of loss on extinguishment of debt.

Second quarter 2014 revenues were $220.8 million, a 14% increase from revenues of $193.9 million in the second quarter of 2013.

“The strong growth in advisory fees revenue was largely driven by an increase in net new advisory assets, successful recruitment of additional advisors and market appreciation,” the firm said in a statement. “Commissions and investment banking revenues also remained very strong due to increased levels of client activity.”

“We’re pleased with another quarter of strong performance on both sides of Ladenburg’s business resulting in significant growth in revenue and adjusted EBITDA,” explained Chairman Dr. Phillip Frost, in a press release.

“As we enter into the second half of the year, we look forward to building on our recent acquisition activity, our momentum in recruiting activity at our independent broker-dealers and the strength of our investment banking business to drive future results,” added President & CEO Richard Lampen.

— Related on ThinkAdvisor:

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