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September 02, 2015 at 08:59 AM
In a prelude to the market meltdown (or at least madness) in the third quarter, the second quarter of 2015 saw slight declines in the S&P 500 and Dow Jones indexes. It also was a volatile time for the markets, with many asset classes turning in lackluster performance.
During the April-to-June period, the U.S. dollar weakened vs. the euro by nearly 4%, but improved vs. the yen by close to 2%. Gold prices dropped 1%, while oil gained a whopping 25%.
Some of the larger financial firms improved profits. But others had flat or poor results, as trading weakened and legal costs continued to impact expenses.
Earnings for the financial sector improved about 7% in Q2, though sales improved 19% on average.
Despite the overall market weakness, the Financial Select Sector SPDR ETF (XLF) rose 2% in Q2, while the iShares US Broker-Dealer ETF (IAI) improved 3%.
Read on to see which of these 12 broker-dealers’ profits grew fastest, and which ones underperformed in terms of earnings per share.
(Related on ThinkAdvisor: 12 Best & Worst Broker-Dealers: Q1 Earnings)
WORST BROKER-DEALER
12th Place
STIFEL FINANCIAL (SF)
Stifel Financial Corp.’s profits plummeted 52% in the second quarter due to merger-related expenses. Stifel reported a net income of $20.9 million, or 27 cents per share, compared with $43.6 million, or 58 cents per share, a year earlier.
Excluding $54.7 million in expenses related to mergers, Stifel reported adjusting earnings of 71 cents a share, slightly less than the 73 cents that analysts, on average, had expected, according to Thomson Reuters.
Net revenue increased about 7% to $597.8 million for the St. Louis-based company thanks to improvements in the asset management and investment banking businesses.
The group, which recently bought Sterne Agee and is in the process of acquiring Barclays U.S. advisors, says the number of financial advisors now stands at about 2,800, a 35% increase from the prior quarter and year.
11th Place
GOLDMAN SACHS (GS)
Investment bank Goldman Sachs said its earnings dropped nearly 50% due to litigation expenses, which trimmed $2.77 a share from its second-quarter profit.
The bank earned $1.05 billion, or $1.98 a share, on revenue of $9.07 billion. Last year Goldman reported net income of about $2.04 billion, or $4.10 a share, on revenue of $9.12 billion.
Analysts had expected earnings of $3.85 a share on revenue of $8.74 billion, according to FactSet.
During the quarter, the firm recorded a $1.45 billion provision for “mortgage-related litigation and regulatory matters,” which reduced earnings by $2.77 a share. Without those expenses, Goldman would have posted earnings of $4.75 a share, beating analysts’ expectations.
Goldman said revenues from its investment banking and financial advisory businesses improved, but sales from trading dropped.
10th Place
RCS CAPITAL (RCAP)
RCS Capital, the parent company of Cetera Financial that was founded by Nicholas Schorsch who left the company, saw its net loss grow to 36% year-over-year, or by nearly $18 million, to $66.1 million ($-1.11 per share) from a loss of $48.5 million (-$3.59 per share) a year ago. Total revenue dropped 23% in the second quarter of 2015 to $678.4 million.
The company had revenue specifically from equity sales in its wholesale business of $107.2 million in Q2, down 67% from the prior year; equity-product revenue was $89.1 million in Q1, off 50% from a year earlier.
As a result, RCAP announced it is selling this business to Apollo Global Management for $25 million in cash. Its advisor-focused business, Cetera Financial Group, plans to work with Apollo in order to sell alternative products through its 9,500 independent advisors.
Plus, RCS Capital says Apollo and affiliates of Luxor Capital Group plan to invest $37.5 million ($25 million from Apollo and $12.5 million from Luxor) in the company through newly issued preferred stock.
Last year, American Realty Capital Properties (ARCP) reported $23 million of accounting errors, and at the time, Schorsch was executive chairman of both entities. RCAP distributes ARCP products, which have included nontraded REITs. This, in part, prompted RCAP to renege on its planned purchase of ARCP’s Cole Capital business for $700 million, and ARCP then moved to sue its investment partner. (ARCP rebranded itself as VEREIT last week (VER).
In the past 12 months, its stock has weakened sharply, with its shares trading around $2. (It hit a two-year high of about $39.50 in early-April 2014.)
9th Place
MORGAN STANLEY (MS)
Morgan Stanley reported a 5% weakening of net income to $1.8 billion, or $0.85 per share, compared with net income of $1.9 billion, or $0.92 per share, in Q2. The company beat earnings estimates with these results.
In Wealth Management, after-tax income was $561 million — a jump of 20% from a year ago and 5% from Q1 2015.
“We delivered a strong quarter across each of our businesses, through client-focused execution, expense discipline and prudent risk management. We remain focused on delivering the long-term value of this franchise,” said Chairman and CEO James P. Gorman, in a statement.
The number of advisors was 15,771 as of June , down from 15,916 in Q1’15 and 16,316 in Q2’15. Average annualized revenue per rep (or fees and commissions) rose 8% from a year ago to $978,000, behind the production level of both Merrill Lynch and UBS.
Total client assets were $2.03 trillion, or roughly $203 million per rep. As of June 30, the transfer of deposits from Citigroup was completed, totaling $4 billion. Wealth Management bank deposits were $132 billion as of Q2.
Morgan Stanley’s Wealth Management unit reported pretax income from continuing operations of $885 million compared with $763 million in the second quarter of last year. The quarter’s pretax margin was 23%, vs. 22% in the prior quarter and 21% a year ago.
8th Place
WELLS FARGO (WFC)
Wells Fargo said it had a slight, 0.2%, drop in its second-quarter net income to $5.72 billion, or $1.03 a share, versus $5.73 billion, or $1.01 a share last year. Revenue, however, was up 1% to $21.3 billion.
Its wealth, brokerage and retirement unit had income of $602 million in the period, an 11% jump from last year and 7% improvement from the prior quarter. Revenue expanded 5% year over year to $3.74 billion.
The unit’s brokerage advisory assets grew 6% from last year to $434 billion, while wealth-management assets increased 2% to $224 million. The group had a pre-tax margin of 26%, topping its 25% goal.
In addition, the firm says it brought on 17 net new financial advisors during the quarter, bringing its total headcount to 15,151. Average loans among its wealth and brokerage clients were $59.3 billion, up 16% from last year. Managed account assets grew 6% to $434 billion.
Total assets for the wealth unit were $1.4 trillion, and assets in individual retirement account assets were $365 billion.
7th Place
JPMorgan Chase & Co. (JPM)
JPMorgan, the biggest U.S. bank by assets, said second-quarter profit climbed 5%, as the firm cut costs to compensate for falling revenue in two of its largest businesses.
Net income advanced to $6.29 billion, or $1.54 a share, from $5.98 billion, or $1.46. Twenty-nine analysts surveyed by Bloomberg estimated $1.45 a share.
Noninterest expenses fell 6% to $14.5 billion, while revenue declined 3% to $24.5 billion.
Earnings at the corporate and investment bank grew 10% to $2.34 billion on a 15% drop in expenses to $5.14 billion. Revenue slipped 6% to $8.72 billion amid sluggish fixed-income trading.
