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12 Best & Worst Broker-Dealers: Q3 Earnings, 2016

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The election of Donald Trump has moved up the stocks of the major banks, broker-dealers and other firms in the financial sector.

The Financial Select Sector SPDR ETF (XLF), for instance, has bounced up 13% in the past few weeks versus a 4% jump in the Dow Jones.

Meanwhile, despite compliance costs associated with the new DOL fiduciary standard, may companies in the group are seeing better financial results.

Last quarter, 11 of the 12 broker-dealers surveyed by ThinkAdvisor had a drop in net income, and just one had increased profits. This quarter, the number of loss-making BDs fell to seven, while five had a positive jump in their profits.

(Related: 12 Best & Worst Broker-Dealers: Q2 Earnings, 2016)

Across the economy, corporate earnings are expected to rise by nearly 4% on average for the quarter ended Sept. 30, according to Thomson Reuters’ estimates, which exclude one-time charges. Revenues should move up about 2.5%.

Read on to see how each BD performed in Q3.


UBS Bank building entrance and sign. 

12th Place

UBS Group (UBS)

UBS Group (UBS) says its earnings dropped about 60% in the most-recent quarter to 827 million Swiss francs (CHF), or 0.22 CHF per share, from 2,068 million CHF, or 0.54 CHF per share, a year earlier.

In the Americas, however, the wealth-management operations continue to outperform rivals: UBS advisors have yearly average fees and commissions of $1,120,000 and average assets per advisor of $156 million.

“We continue to be the industry leader,” it said in a statement, noting that is has 7,087 advisors in the U.S., Canada and Latin America.

“The quarter saw record pre-tax profit [of $328 million] driven by record recurring net fee income and record net interest income as well as continued growth in banking,” UBS explained.

The UBS unit had revenue of over $1.9 billion in the most-recent period. It says about $1.6 billion, or 81%, is recurring fee-based income and net interest. That’s up from 79.7% a year ago.

Richard Lampen, President and CEO of Ladenburg Thalmann Financial Services, Inc. 

11th Place

Ladenburg Thalmann (LTS)

Ladenburg Thalmann Financial Services said its net quarter loss expanded to nearly 50% to minus $15.3 million or down $0.08 per share as of Sept. 30, 2016, compared to -$10.2 million or -$0.06 per share the prior year.

The firm, which owns Securities America, Triad Advisors, Securities Service Network, Investacorp an KMS Financial Services, says its third-quarter revenues were $274.3 million, a 3% decline from the prior year.

Commissions revenue for the three months ended Sept. 30 decreased by 7% year over year to $128.0 million “mainly a result of an industry-wide decline in sales of alternative investment, mutual fund and variable annuity products resulting from volatile markets, investor uncertainty in the low interest rate environment and the impact of the pending Department of Labor’s fiduciary rule,” according to a press release.

For the three and nine months ended Sept. 30, 2016, recurring revenues, which consist of advisory fees, trailing commissions, cash sweep fees and certain other fees, represented about 77% and 76%, respectively, of revenues from the company’s independent brokerage and advisory services business. The firm, which is led by Dr. Phillip Frost, chairman, has some $132 billion of client assets.

Ameriprise Financial Headquarters in Minneapolis.

10th Place

Ameriprise Financial (AMP)

Ameriprise Financial missed analysts’ expectation in the third quarter, as net income fell 46%, to $215 million, or $1.30 a share, from $397 million, or $2.17 a share, a year ago. Revenues improved 4%, though, to about $3 billion.

“With good inflows in investment advisory accounts, retail client assets grew to a record high,” said Chief Executive Jim Cracchiolo, in a statement. “In a more volatile climate and period of change for the industry, we are managing expenses well.”

Ameriprise has $796 billion of client assets as of Sept. 30. Its 9,747 employee and affiliated advisers account for $476 billion, or about 60% of total assets.

In the third quarter, the company said it spent about $7 million for expenses related to the new Department of Labor fiduciary standard. “The company is dedicating significant internal resources to prepare for the Department of Labor fiduciary rule and maintaining targeted growth investments,” it said in its earnings release.

The Advice & Wealth Management unit had net inflows of $2.8 billion in the quarter versus $3 billion in the year-ago period.

On a trailing-12-month basis, yearly fees & commissions per advisor declined 1% from last year to $511,000, “as higher advisory fee revenue was more than offset by lower transactional client activity,” the company says, adding that it brought on 80 veteran advisors in the third quarter.

The unit’s pre-tax earnings grew 5% year over year to $231 million on revenues of $1.27 billion, representing a pre-tax margin of 18.2%.

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

9th Place

Citigroup (C)

Citigroup says its net income for the third quarter was $3.84 billion, or $1.24 per diluted share, on revenues of $17.8 billion. This compared to net income of $4.31 billion, or $1.35 per diluted share, on revenues of $18.7 billion for the third quarter 2015 – representing an 11% drop in net income.

“We remain intensely focused on shareholder returns. The acquisition of the Costco portfolio and the recently announced sales of our retail operations in Argentina and Brazil are the latest examples of how we are shifting resources to the areas we believe will generate the best returns for our shareholders,” said Citi CEO Michael Corbat, in a statement.

The Institutional Client Group had sales of $8.6 billion, up 2% from the prior year, driven by an 11% jump in Markets and Securities Services revenues and a 7% increase in banking revenues, which were partially offset by a $218 million loss on loan hedges related to accrual loans.

This unit also includes the result of some 800 private bankers and product specialists worldwide.

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

8th Place

JPMorgan (JPM)

JPMorgan’s net income weakened 8% to $6.3 billion, or $1.58 per share, vs. $$6.8 billion, or $1.68 per share. Adjusted revenue was $24.7 billion.

Total trading revenue was $5.75 billion, up 33% from the same quarter last year. Fixed income trading revenue was $4.33 billion, a jump of 45%, driven by a stronger quarter in rates, credit and securitized products.

Equity trading revenues were $1.42 billion, up 1% from the year-ago quarter, while investment banking revenue was $1.74 billion, a 14% year-over-year gain.

The firm’s Asset Management activities include some 2,560 client advisors who generated revenue of $1.55 billion in the latest period, up from $1.41 billion a year ago – when it had nearly 2,800 reps.

Ronald Kruszewski, CEO of Stifel Financial. (Photo: AP)

7th Place

Stifel Financial (SF)

Stifel Financial reported a 5% drop in net income to $16.25 million, or $0.21 per share, versus $17.18 million, or $0.22 per share, a year earlier.

The firm has some 2,280 employee advisors with about $235 billion in client assets, roughly $68 billion of which are in fee-based accounts.

“I am pleased with our results as Stifel generated $642 million in GAAP net revenue in the quarter. Excluding the revenue tied to the Sterne Agee businesses that we sold at the beginning of the quarter, GAAP net revenue increased 2% sequentially driven by our Global Wealth Management and Advisory businesses, said Chairman & CEO Ron Kruszewski, in a statement.

“Despite the progress we continue to make in our growth initiatives, the industry continues to face headwinds from lower trading volumes and subdued issuance markets as well as from heightened regulatory oversight,” he explained.

The Global Wealth Management Brokerage unit had revenues of $165.5 million, down 2% from a year ago (that was tied to the Sterne business). Excluding the Sterne business, this group had a 9% jump in sales.

Total sales for the company in Q3’16 were $642 million.

Wells Fargo Headquarters in San Francisco. (Photo: AP)

6th Place

Wells Fargo (WFC)

Wells Fargo said its net income fell about 3% to $5.64 billion in the third quarter, or $1.03 a share, from $5.8 billion, or $1.05, a year earlier. Total revenue grew nearly 2% to $22.3 billion from Q2’15, and both results topped analysts’ expectations.

The bank said recently that clients opened about 30% fewer consumer checking accounts in September—when it was fined some $185 million by federal authorities for the opening of perhaps as many as 2 million fake accounts—vs. August, according to a Bloomberg report. Also, credit-card applications fell by a similar amount, and visits with branch bankers dropped 14% from the prior month.

“We know that it will take time and a lot of hard work to earn back our reputation,” said Tim Sloan, who replaced John Stumpf as CEO, in the statement. “We will work tirelessly to build a stronger and better Wells Fargo.”

As for the bank’s wealth-management unit, which includes about 15,100 Wells Fargo advisors, revenue grew 6% from last year to $4.1 billion, while profits jumped 12% to $677 million. Its pretax profit margin was 27%. Client assets were $1.7 trillion, up 9% from the year-ago period.

When asked what Wells Fargo intended to do to comply with the new Department of Labor fiduciary rules during the call with analysts, CFO John Shrewsberry said the bank aims to “emphasize advisory solutions and continue to offer traditional brokerage for certain clients. That includes self-directed options.”

Average loans in Q3’16 for the unit were $68.4 billion, a gain of 3% from the prior quarter and 12% year over year.

In other news, Wells Fargo’s wealth-management unit says it has changed the way it reports cross-selling, which it now classifies as “referred investment assets,” according to Reuters. The business had $1 billion in such assets as of Q3’16.

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

5th Place

Bank of America (BAC)

Bank of America-Merrill Lynch said its net income grew 7% to $4.45 billion, or $0.41 per share, in the third quarter ended Sept. 30 vs. $4.17 billion, or $0.38 per share, a year ago, beating estimates. Revenue grew 3% year over year to $21.6 billion.

The Global Wealth & Investment Management unit reported net income of $697 million, up 10% compared to the third quarter of 2015. Revenue, though, was down about 2% from last year to $4.4 billion. The group’s pre-tax margin hit 25% vs 26% in the prior quarter, though it is up from the year-ago level.

The total number of wealth advisors is 16,069, up 158 from the prior quarter, excluding those in the mass-affluent Merrill Edge program, while the number of FAs is 14,552.

Average annual advisor productivity (or fees & commissions) stands at $983,000 vs. $1,007,000 as of Sept. 30, 2015. While the unit’s asset management fees of nearly $2.1 billion were up 1% compared to the prior quarter they were down 1% year over year.

Merrill Lynch recently said that it abandoning commission-based retirement accounts in response to the coming Department of Labor fiduciary rules, which go into place in April 2017.

Mark Casady, CEO of LPL Financial. 

4th Place

LPL Financial (LPLA)

LPL reported that its third-quarter net income rose 27% from last year to $52 million, or $0.58 per share, beating analysts’ estimates. Sales, though, dipped 4% to about $1.02 billion, which were generally in line with what analysts expected.

The independent broker-dealer also said total brokerage and advisory assets grew 9% year over year and 3% sequentially to $502 billion. Net new advisory assets increased at an annualized rate of 8%, or $4.1 billion.

The independent broker-dealer remains upbeat about its strategy to keep commissions in retirement accounts and other moves it is making in response to the new DOL fiduciary rule. It has some $502 billion of client assets, $261 billion of which are retirement assets affected by the coming regulations.

Earlier this year, the firm said it planned to end its mutual-fund direct business, which let LPL advisors hold brokerage mutual fund investments directly with sponsors, on April 10, 2017; it also explained that its new fund-only accounts will not entail IRA custodial fees, trading (or ticket) charges, inactive account or confirm fees, and fees for “systematics.”

Paul Reilly, CEO of Raymond James Financial.

3rd Place

Raymond James Financial (RJF)

Raymond James Financial said its net income rose 33% in the most-recent quarter to $171.7 million, or $1.19 per diluted share. Net revenues were close to $1.5 billion, a 9% jump over the year-ago period.

“We are delighted that all four of our core operating segments generated record net revenues and the firm produced record net income for both the fiscal fourth quarter as well as fiscal 2016,” said CEO Paul Reilly, in a statement. “The records we have reached for client assets under administration, financial assets under management, the number of Private Client Group financial advisors and RJ Bank net loans give us good reason to be optimistic about the future.”

The Private Client Group had quarterly net revenues of $963.3 million, up 7% from both the prior year’s fiscal fourth quarter and the preceding quarter. Its pre-tax income was $106.3 million, up 21% over the prior year’s fiscal fourth quarter and 30% over the preceding quarter.

The group as financial advisors of 7,146 advisors, representing net increases of 550 over September 2015 and 312 over June 2016.

“Our steadfast commitment to serving our clients and advisors enabled us to realize our second best year for financial advisor recruiting as well as exceptionally high retention of our existing advisors,” Reilly explained. “We are also excited to welcome the 265 advisors from Alex. Brown and 3Macs and their teams to the Raymond James family.”

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

2nd Place

Goldman Sachs (GS)

Goldman Sachs reported that its third-quarter net income soared 58% to $2.1 billion, or $4.88 per share, up from $1.3 billion, or $2.90, a year ago. Revenue, including interest income, rose 19% to $8.2 billion.

The institutional client services unit, which include securities trading, had a 17% revenue gain and hit $3.75 billion for the third quarter. At the same time, trading revenue for debt securities, currency and commodities improved 34% to $1.96 billion, while equities revenue ticked up 2% to $1.78 billion due to gains in derivatives.

“We saw solid performance across the franchise that helped counter typical seasonal weakness,” Goldman Sachs’ Chairman and CEO Lloyd Blankfein said in a statement. “We continue to manage our balance sheet conservatively and are benefiting from the breadth of our offerings to clients.”

Revenue in investment management, including asset management for wealthy individuals and institutional clients, grew 4% year-over-year to $1.49 billion on higher incentive fees and assets under supervision, which hit $1.35 trillion.


Morgan Stanley headquarters in New York.

1st Place

Morgan Stanley (MS)

Morgan Stanley said its third-quarter profits soared 62% to $1.5 billion, or $0.81 a share, vs. $939,000, or $0.48 per share, a year ago. Revenues grew 15% to $8.9 billion, up from $7.8 billion in the year-ago period. Results beat analysts’ estimates.

“We had a better quarter. What I’m pleased about is we did it with 25% less people,” said CEO James Gorman during a call with equity analysts.

Wealth Management net revenues in Q3 were $3.9 billion, up 7% from last year and 2% from the prior quarter. After-tax net income for the unit was $564 million, representing an 11% year-over-year improvement as well as a 9% quarter-over-quarter increase.

Pre-tax profits were $901 million, giving the unit a pre-tax margin of 23% — the strongest performance since Morgan Stanley Smith Barney formed seven years ago, according to the company.

There are now 15,856 advisors in the wealth unit, down about 50 from the second quarter but up a similar number from Sept. 30, 2015. Average assets per advisor are roughly $132 million, while the average yearly level of fees & commissions is $977,000.

— Related on ThinkAdvisor: 12 Best & Worst Broker-Dealers: Q2 Earnings, 2016


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