Earnings by most companies in the S&P 500 Index were an average of about 2.5% lower in the second quarter of 2016 compared with a year ago. This represents the fourth drop in a row according to Thomson Reuters data and the fifth consecutive decline as calculated by FactSet.
However, there is some good news: S&P 500 profit margins have been near record highs, when the energy sector is excluded, says LPL Financial Chief Investment Officer Burt White. Plus, S&P 500 revenue is up 3% year over year, after energy-related results are removed.
In general, second-quarter earnings season “has been OK, but we were hoping for more,” White says in a recent note to clients.
His team predicts a rebound in corporate earnings during the second half of 2016.
Read on to see how broker-dealers, an important part of the financial sector, did in Q2’16 in light of the S&P average:
Ladenburg Thalmann (LTS)
Landenburg Thalmann, the parent company of Securities America, says its net loss more than doubled in the second quarter.
It had a net loss of $25.2 million, or -$0.14 per share, vs. a net loss of $9.6 million, or -$0.05 per share, in the year-ago quarter.
Total revenues for the financial services firm dropped 9% to $270 million from Q2’15. Commissions declined 11% to $127 million, while advisory fees weakened 6% to $112 million. Service-fee revenues also declined by $3 to $20.8 million.
Across the company, client assets stand at $128 billion at June 30 on par with year-ago assets; cash balances are roughly $4.4 billion. The financial group also says that in Q2’15, recurring revenue represented 75% of the independent brokerage and advisory services business.
(Ladenburg’s operations include Securities America, Triad Advisors, Inc., Securities Service Network, Investacorp and KMS Financial Services, as well as Premier Trust, Ladenburg Thalmann Asset Management, insurance broker Highland Capital Brokerage and the investment bank Ladenburg Thalmann.)
Stifel Financial (SF)
Stifel Financial had a 53% drop in net income in the second quarter, despite a year-over-year jump of over 8% in both total sales and wealth management revenue.
The financial services firm had profits of $9.8 million, or $0.13 per share, vs. $20.9 million, or $0.27 per share, a year ago – topping analysts’ estimates. Revenues improved 9% year over year to $652.1 million.
Total revenues in wealth management was $386 million, up 12% from a year ago and 2% from the prior quarter – accounting for nearly 60% of the firm’s total sales. Operating profits for the wealth unit were $105.1 million, up 12% and 3%, respectively from Q2’15 and Q1’15.
As of June 30, Stifel had 2,838 financial advisors with $237.5 million in client assets. On July 1, it completed the sale of its Sterne Agee independent-advisor business, which included 540 reps and $11.5 billion in client assets.
Thus, as of July 1, Stifel has 2,298 advisors and $226 billion in client assets – which represents an average of about $98.5 million in client assets per advisor. Of its total advisor force, roughly 2,170 are employee reps and 130 are independent advisors.
Ameriprise Financial (AMP)
Ameriprise reported second-quarter 2016 net income of $335 million, or $1.97 per share. That is a 19% drop from $415 million in the second quarter of 2015.
Operating earnings also fell year over year by 13% to $379 million, or $2.23 per share, in the quarter; these results missed analysts’ estimates.
The financial services company posted revenue of $2.9 billion in the second quarter, down 4% from a year ago.
Total assets under management and administration were $777 billion. Advice & Wealth Management advisor client assets increased to $462 billion, reflecting “continued strength in fee-based investment advisory net inflows, including $2.3 billion of net inflows in the quarter,” according to the company.
On a trailing 12-month basis, operating net revenue (or fees and commissions) per advisor declined 1% to $507,000. This reflects lower average equity markets, high market volatility and lower transactional client activity, according to Ameriprise.
The total number of advisors grew to 9,758, which reflects strong retention and “another successful recruiting quarter,” according to the company. In the quarter, 98 advisors moved their practices to Ameriprise.
Bank of America (BAC)
Bank of America reported quarterly earnings and revenue that beat analysts’ expectations.
The company posted second-quarter net income of $4.23 billion, or $0.36, down 18% from $5.13 billion, or $0.45 a share a year earlier. Revenue for the quarter fell 7% to $20.4 billion, against the comparable year-ago figure of $22 billion.
Net interest income for the bank declined 12% in the year-ago period to $20.4 billion
“We believe we surely can [maintain a profit if interest rates do not rise],” CEO Brian Moynihan explained on a call with equity analysts. “If rates rise, we would expect [net interest income] to grow.”
Most of the company’s divisions produced higher sales and net income in Q2’16 vs. the year-ago period, with the exception of both the wealth management operations and activities not included in the bank’s consumer banking, global banking and global markets operations.
Revenue from Merrill Lynch, U.S. Trust and the bank’s consumer-banking unit was down 2.4% year over year to $4.46 billion, while net income improved 8% to $722 million. The unit’s net interest income rose slightly to $1.43 billion from $1.35 billion last year.
The Merrill Lynch business, though, has a 4.2% drop in revenue to $3.63 billion in Q2’16. Plus, the level of advisor productivity (or average yearly fees and commissions per rep) declined to $984,000 from $1,050,000 a year ago.
Bank of America says it has some 16,664 financial advisors (up about 300 from a year ago and up about 50 from the prior quarter); 2,248 of these reps are with the consumer-banking unit. It also says it has a total of 18,159 wealth advisors, 2,229 of whom are with U.S. Trust.
Total client assets weakened to $2.42 trillion in Q2’16 vs. $2.52 trillion a year ago, but asset flows improved to $10.1 billion from $8.6 billion. In addition, the unit’s pretax margin was 26% in the most-recent period, up from 23% a year ago.
Citigroup said its company’s net income of $4.0 billion, or $1.24 per share, was down 17% from $4.8 billion, of $1.51 per share in the year-earlier period. Revenue for the quarter came in at $17.55 billion, against the year-earlier figure of $19.158 billion.
These results topped estimates of about $1.10 a share for earnings and $17.47 billion in revenue.
Trading revenues was close to $4.7 billion, up 10% year over year. Fixed income revenues reached nearly $3.5 billion, a jump of 14%.
Equity trading revenues totaled about $790 million, up 21% from last year, and investment banking revenues were $1.2 billion, down 6% year over year.
“These results demonstrate our ability to generate solid earnings in a challenging and volatile environment, again highlighting the resilience of our institution. Nearly all of our net income came from our core businesses and we continued to reduce noncore assets in Citi Holdings,” said CEO Michael Corbat, in a statement.
UBS Group (UBS)
UBS beat expectations with a second-quarter profit of about 1.03 billion Swiss francs ($1.06 billion), but that was down roughly 16% from the year-ago results.
The company’s adjusted pretax profits, though, increased slightly from a year ago to about 1.7 billion Swiss francs in the second quarter of 2016.
The Wealth Management Americas unit, which includes more than 7,000 advisors, reported that its operating earnings declined 1% year over year to $1.9 billion, mainly due to lower client activity and lower mutual fund fees.
Adjusted pretax profits, however, increased to $281 million – up 15% from the prior quarter and 22% from a year ago. According to the company, the increase in adjusted profits reflects record net interest income and lower operating expenses.
“Wealth Management Americas delivered a strong performance, with profit before tax up more than 20% year on year, and our financial advisors maintained their status as the most productive among peers,” said CEO Sergio Ermotti during a call with equity analysts.
Net new money inflows for the period were $2.4 billon despite seasonal tax-related outflows, compared with $0.7 billion of net outflows in the same quarter last year.