The news for banks, broker-dealers and other large financial-services firms is not good for 2016.
In fact for some firms, the first quarter of 2016 proved to be the worst since the financial crisis of 2007-2008.
A number of issues are causing trouble for the group, including economic growth in China, low oil prices and weak interest rates, not to mention continued market volatility. And many banks are struggling to improve their fixed-income results, as well as proprietary trading.
Of the 11 broker-dealers surveyed by ThinkAdvisor, 10 had negative earnings growth in the first three months of 2016 vs. the same period of 2015.
Analysts say they worry about Q2’16 and the rest of the year, since falling revenue can make it tough for companies to both cut costs and produce higher earnings, of course. Plus, the poor showing of the capital markets weakness is poised to continue, at least in the short term, they caution.
As for the latest trading results, the performance says a lot: The Financial Sector SPDR ETF (XLF) is down about 2.5% for the year through May 12 vs. a nearly 1.3% increase for the S&P 500.
(Related on ThinkAdvisor: 10 Best & Worst Broker-Dealers: 2015 Earnings)
After a bad first quarter, “We don’t think that necessarily gets recovered in the back half of the year,” said Jerry Braakman, chief investment officer of First American Trust, which owns shares of Citigroup, JPMorgan, Wells Fargo and Goldman, in an interview with Reuters last month. “There are a lot of challenges ahead.”
Read on for the latest rankings of how the broker-dealers performed in the first quarter.
Group AG’s first-quarter profits fell 64% to 707 million Swiss francs, or about $741 million, missing missed analysts’ estimates on weak results in investment banking and trading.
Meanwhile, revenue dropped 23% to 6.8 billion francs in the first quarter.
“This cocktail of macro issues, geopolitical issues is now coming on,” CEO Sergio Ermotti said in an interview on Bloomberg Television.
The global wealth-management unit’s pretax profit fell 41% from last year to 557 million Swiss francs on low transaction volumes, as revenue weakened 16% to 1.885 billion Swiss francs. But the Wealth Management Americas unit reported revenue that outpaced these results – at 1.889 billion Swiss francs, up 5% from a year ago. Pre-tax profits for the Americas unit, however, were 211 Swiss francs (about $212 million), representing a year-over-year decline of 17%.
Assets per advisor in the Americas stands at $147 million, and the level of average fees & commissions per rep is now $1,064,000. Advisor headcount in the Americas totals 7,145.
GOLDMAN SACHS (GS)
Goldman Sachs’ net income tumbled 60% to $1.14 billion, or $2.68 per share, on revenue of $6.34 billion in the first quarter of 2016.
“The operating environment this quarter presented a broad range of challenges, resulting in headwinds across virtually every one of our businesses,” said CEO Lloyd Blankfein in a statement.
Trading revenue came in at $3.44 billion, down 37% from the same quarter a year ago, while fixed income, currency, and commodities revenues weakened 47%. Meanwhile, investment-banking revenue worsened by 23% to $1.46 billion.
In addition, investing and lending revenues came in at $87 million, down from $1.67 billion from the year-ago quarter.
MORGAN STANLEY (MS)
Morgan Stanley explained that it net income fell 53% in the first quarter to $1.1 billion, or $0.55 per share, vs. $2.4 billion, or $1.18 per share, last year. Revenue declined 21% year over year to $7.79 billion.
The company adds that last year’s Q1 results included a tax benefit of $564 million or $0.29 per share. (Earnings beat analysts estimates, though sales fell short.)
“Obviously, 2016 got off to a difficult start,” said Chairman & CEO James Gorman on a call with investors, adding that “retail activity was extremely subdued.”
Despite the “more challenging revenue environment,” Gorman explained, “all was not lost. Wealth Management generated a pretax margin greater than 21% …, [and] we made real progress in our expense discipline …”
Morgan Stanley’s Institutional Securities business, its largest, had a 66% drop in net profits to $591 million vs. last year, as revenue slumped 32% to about $3.7 billion. In investment banking, the volume of IPOs was down 82% quarter over quarter, CFO Jonathan Pruzan said during a conference call with equity analysts.
Wealth Management’s net income declined 8% from last year to $493 million. Sales weakened about 4% from the year-ago quarter to $3.67 billion.
In addition, the average yearly fees and commissions for its financial advisors, which number 15,888, declined by 4% from last year to $923,000. Total assets for the unit dropped slightly, 2%, to about $2 trillion.
STIFEL FINANCIAL (SF)
Stifel Financial had first-quarter 2016 net income of $27.1 million, or $0.36 per diluted common share, down 37% from a year ago. Net sales, though, grew 11% year over year to $620.0 million.
Total net revenue in the global wealth management segment was $380 million, up 9% sequentially and 15% year over year. GWM’s brokerage revenue grew 4% sequentially and 10% from last year to $173 million.
The group includes 2,849 financial advisors – 688 of whom are independent contractors; this is down from 2,819 in the prior quarter but up from 2,097 a year ago.
Citigroup’s net income weakened 27% in the first quarter to $3.5 billion compared to the same period a year earlier. Total revenue fell 11% to $17.6 billion on decreased global consumer banking, institutional clients and core Citicorp operations.
Earnings per share of $1.10, though, did beat analysts’ expectations.
“While our market-sensitive products clearly suffered from weak investor sentiment during the quarter, we continued to make progress in several key areas,” Citi CEO Michael Corbat said in statement.
“We grew loans and deposits in our core businesses, reduced our expenses while absorbing a significant repositioning charge, utilized additional deferred tax assets, and generated capital in excess of what we returned to our shareholders.”
Citigroup’s allowance for loan losses dipped 2% to $12.7 billion, compared to a year earlier. The company has $619 billion in loans on its books, unchanged from the first quarter of 2015. Deposits rose 4% to $935 billion.
BANK OF AMERICA (BAC)