The fourth quarter was volatile for the markets and for several big financial firms.
The price of oil continued to weaken, and commodities on average fell 12% in the final three months of 2014.
The S&P 500, though, rose nearly 5%, while the Barclays U.S. Aggregate Bond Index ticked up close to 2%. Real estate investment trusts were the top-performing asset class, with a return of close to 13% in the period.
Fourth-quarter earnings for the financial sector improved about 11%, though, as sales ticked up about 21% on average.
Still, due to regulatory, volatility, interest rate and other concerns, the Financial Select Sector SPDR ETF (XLF) is down nearly 1% in early 2015, while the iShares US Broker-Dealer ETF (IAI) is off about 0.1%. (For the past 12 months, however, XLF has improved nearly 12.5% vs. a 14% jump for the Dow Jones Industrial Average.)
(Check out the previous quarter’s list: 13 Best & Worst Broker-Dealers: Q3 Earnings, 2014.)
Read on to see which of these 12 broker-dealers’ profits grew fastest, and which ones underperformed in terms of earnings per share.
RCS CAPITAL (RCAP)
RCS Capital, the parent company of Cetera Financial that was founded by Nicholas Schorsch, said fourth-quarter revenues fell 27% to $504 million and earnings plummeted to a loss of nearly $123 million, or -$1.33 per share, vs. a loss of $1.4 million, or -$0.02 per share, a year ago as fallout from troubles at American Realty Capital (ARCP) continued.
On an adjusted basis, earnings dropped 70% to $12.6 million or $0.14 a share, compared with $42.7 million, or $0.46 a share, in Q4’13. Both adjusted earnings and revenues missed analysts’ expectations; they had forecast $0.18 in adjusted EPS and sales of $605 million in the period.
The wholesale unit said revenue from sales of nontraded REITs and other products, some of which carry the American Realty Capital brand, was $92.1 million in the quarter based on $946 million in total direct investment sales vs. year-ago revenues of $186.6 million on $2.1 billion in total direct investment sales. These results represent a drop of 55% in equity sales and a 51% decline in revenue tied to these sales.
Though the group says it has 1,568 active selling agreements in place, up from 1,151 deals in early 2014, the latest results clearly reflect suspensions to selling deals that mushroomed after ARCP announced $23 million of accounting errors in late October. Even Cetera dropped sales of some ARCP-connected products.
“Importantly, we expect the ongoing reinstatement of our selling agreements and the strengthening of our selling group will continue to be a positive contributor to our capital-raising activities,” said Realty Capital Securities CEO Bill Dwyer, in a press release.
On a positive note, RCS Capital says its headcount of advisors stands at 9,023, up from about 8,900 a year ago. Once the acquisitions of VSR and Girard Securities are completed, it should include about 9,500 FAs.
Citigroup reported net income of $350 million, down about 86% from $2.5 billion reported in the prior-year quarter. Its adjusted earnings per share for the period were $0.06, missing estimates. It cited legal expenses for much of the drop.
For the full year, adjusted earnings were $3.55 per share, beating estimates.
Adjusted revenues of Citigroup came slightly lower than the prior-year quarter to $17.8 billion.
Excluding adjustments, revenues were stable from the prior-year quarter. Revenues of corporate and related sectors declined, but revenues in the Institutional Clients Group and Global Consumer Banking were stable.
Operating expenses at Citigroup rose 21% year over year to $14.4 billion mainly due to rising legal and related costs, as well as regulatory and compliance expenses.
At quarter end, Citi’s assets were $1.9 trillion, up 2% year over year, but loans decreased 3% year over year to $645 billion. Plus, deposits fell 7% to $899 billion.
BANK OF AMERICA (BAC)
Bank of America’s net income fell 11% in the fourth quarter of 2014 to $3.05 billion, or $0.25 per share, from $3.44 billion, or $0.29 per share, a year earlier. Its total revenue dropped nearly 13% to $18.96 billion..
Global Wealth and Investment Management boosted revenue 3% from a year ago to $4.6 billion, “driven by higher noninterest income with record asset management fees, partially offset by lower transactional activity,” according to BofA-Merrill Lynch. (Merrill revenue accounted for $3.8 billion, or 83%, of total wealth management sales.
Excluding advisors in consumer and business banking, the number of advisors was 14,085 in Q4, an increase from 13,772 a year earlier and from 13,999 in the prior quarter.
Productivity of these Merrill Lynch reps, as measured by average yearly fees and commissions, was roughly $1.07 million in the fourth quarter, down slightly from $1.08 million in Q3 but up from $1.04 million in Q4’13.
GOLDMAN SACHS (GS)
Goldman Sachs Group was able to slightly beat estimates with $4.38 of earnings per share on revenues of $7.7 billion in the fourth quarter. Still, net earnings applicable to shareholders for the period dropped 10% year over year to $2.0 billion; overall net earnings fell 6% to $2.2 billion.
“We are pleased with our performance during a year characterized by mixed global economic and financial conditions,” Lloyd Blankfein, CEO of Goldman Sachs, said in a press release.
Total operating expenses fell 15% to $4.5 billion in the quarter.
On the sales side, fixed-income trading revenue at Goldman declined 30% to $1.22 billion for the fourth quarter. Still, the bank’s total trading revenue hit $3.15 billion, boosted by a 15% improvement in equity trading revenue.
The private equity portfolio, referred to as Investing & Lending, had $1.51 billion in sales. And investment banking revenue was $1.44 billion.
Goldman repurchased 6.6 million shares during the fourth quarter at an average price of $188.14, for a total of $1.25 billion. For the full year, the firm repurchased 31.8 million shares at an average price of $171.79. KBW had forecast Goldman to buy back 11.1 million shares.
JPMorgan Chase & Co. (JPM)
JPMorgan reported a 6.6% drop in its fourth-quarter profits, tied to a 23% decline in fixed-income trading revenue and heavy legal costs. (Last quarter, it was the best-performing broker-dealer.)
JPMorgan’s net income was $4.93 billion, or $1.19 a share, in Q4’14 vs. $5.28 billion, or $1.30, a year earlier. Excluding $990 million in legal expenses and other one-time charges, earnings per share were $1.33, which beat analysts’ estimates.
Net income for the year was a record $21.8 billion, on revenue of $97.9 billion, as legal costs shrank $8.2 billion from 2013. For the fourth quarter, revenue declined 2.3% from a year earlier to $23.6 billion.
The bank’s fixed-income trading sales were $2.5 billion during the period, when it sold its commodities unit and experienced lower revenue tied to credit and securitized products.
Meanwhile, equity trading revenue rose 25% year over year to $1.1 billion on gains in the derivatives and prime-brokerage business, and net income at the corporate and investment bank rose 3% to $972 million.
JPMorgan retail bank branches have 3,090 financial advisors and 21,039 private bankers, according to its latest results.
Net new assets in the period for these advisors were $3.3 billion in Q4’14, down from $4.3 billion in the third quarter and $3.6 billion a year ago. Total client investment assets came to $213.5 billion, with 39% held in management accounts.
STIFEL FINANCIAL (SF)
Stifel Financial, which is buying broker-dealer Sterne Agee for $150 million, says its fourth-quarter earnings were $58.4 million, or $0.75 per share, $0.03 below analysts’ estimates for the adjusted results.
Revenue for the quarter was $578.1 million vs. the consensus estimate of $581.6 million.
While Stifel’s non-GAAP net income fell about 2% year over year (to $58.4 million), its GAAP earnings declined 6% to $45.2 million, $0.58 per diluted common share, vs. $48.3 million, or $0.64 per diluted common share.
(The company says the non-GAAP results exclude merger-related expenses associated with recent acquisitions.)
If all reps and all assets stay after the merger, Stifel will have some 2,095 employee advisors, 738 independent reps and $200 billion of AUM. It has set aside some $58 million for retention packages as part of the deal.
The deal with Stifel comes after a turbulent period for the Birmingham, Alabama-based broker-dealer. In May, Sterne Agee CEO James Holbrook Jr. and his son William, who served as the firm’s chief operating officer, were asked to leave the firm, after they came under investigation by the U.S. Treasury and Justice Department.