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February 27, 2017 at 10:02 AM
Earnings season is nearly over.
It was no “blowout quarter by any stretch,” says LPL Financial CIO Burt White, though earnings growth did improve about 7.5% on average, according to Thomson Reuters.
That improvement, along with 5% revenue growth, “is nothing to sneeze at,” White adds. “Further, policy optimism on Wall Street and among corporate management has helped full-year estimates for 2017 hold up relatively well. This week, we share five observations about fourth quarter earnings season so far.”
What are companies thinking about? Of the first 317 S&P 500 companies that reported Q4’16 results, tax policy was mentioned on 85 of the earnings calls, he points out.
(Related: 12 Best & Worst Broker-Dealers: Q3 Earnings, 2016)
“Regulation — of particular interest for financials — and trade policy have also garnered a lot of attention. These policies have the greatest potential to influence broad earnings,” White explained in a recent note to investors.
“We still lack clarity on what tax reform and other policies out of Washington will look like. But the latest headlines out of Washington and actual earnings results have given us no reason to change our belief that policy changes may add meaningfully to earnings growth once implemented,” he added.
The LPL strategist believes investors, advisors and others could start to see the impact of policy changes on earnings as early as late-2017, though any potential earnings boost is more likely to come next year.
“Estimates vary widely, but we believe an expectation of a 3-5% lift from tax reform, infrastructure spending, and deregulation is reasonable,” White said.
As for how the financial sector has done so far this earnings season, it has been “the clear winner,” he points out, with over 20% average year-over-year earnings growth.
“The environment has been favorable for banks with a steepening yield curve (long-term interest rates rising more than short-term rates) and a pick-up in economic activity,” explained White. “Strong stock market gains, healthy credit markets, and robust trading activity have boosted capital markets firms.”
Estimates for the group also have been among “the most resilient” of late, thanks to the the favorable environment noted above and prospects for deregulation, he concludes.
Read on to see how the largest broker-dealers did in the final period of 2016.
WORST BROKER-DEALER
11th Place
UBS
Zurich-based UBS Group reported a 22% drop in its fourth-quarter net profits to 738 million Swiss francs ($737.26 million) from 949 million francs a year ago, when it recorded a large tax benefit.
For the fourth quarter, UBS said operating income at its wealth management unit outside the Americas fell 5% compared with the same period a year earlier, while operating expenses fell 7%.
In the Americas, pretax operating profits soared to $337 million from $13 million in the year-ago period. Operating income improved 10%, as operating expenses fell 7%.
UBS says its 7,025 advisors in the Americas brought in an average of about $1.17 million of yearly fees and commissions in 2016 and had average client assets of $158 million—topping wirehouse rivals like Merrill Lynch and Morgan Stanley.
10th Place
WELLS FARGO
Wells Fargo, moving to recover from a scandal in its retail banking operations, said it had fourth-quarter diluted earnings of $1.03 per share on $21.6 billion in revenue. Its net income of $5.3 billion was down slightly from $5.6 billion in the year-ago quarter, while sales rose 1%.
Fourth-quarter net interest income, a measure of earnings from customer deposits, climbed to $12.4 billion from $11.6 billion a year earlier.
“We believe investors are looking past the noise and looking to the margin improvement which should drive shares higher,” Keefe, Bruyette & Woods Inc. analysts led by Brian Kleinhanzl wrote in a note to investors.
Improved net interest margins were “driven by growth in loans, investment securities and trading assets, and the impact from higher interest rates,” the bank said.
The Wealth and Investment Management unit’s total client assets reached a record high of $1.7 trillion, up 7% from a year ago. Net income rose to about $650 million from roughly $600 million in Q4’15.
9th Place
CITIGROUP
Citigroup’s profits grew 7% to $3.57 billion on a 36% increase in fixed-income revenue.
The bank’s revenue from handling bonds, currencies and commodities was $3.01 billion in the quarter, excluding an accounting adjustment.
This improvement was the highest since the financial crisis, according to data compiled by Bloomberg, and topped analysts’ $2.83 billion estimate.
Citigroup Chief Financial Officer John Gerspach said on a conference call that “good client activity” continued into the first weeks of January.
In equity trading, Citigroup’s revenue jumped 15% to $694 million.
8th Place
AMERIPRISE FINANCIAL
Ameriprise Financial says its net income rose 12% from last year to $400 million, or $2.46 per share, in the fourth quarter of 2016 — topping analyst estimates. Sales, though, fell 1% to $3.1 billion.
Its Advice & Wealth Management assets grew 7% from the year-ago quarter to $479 billion; net inflows into fee-based investment advisory wrap accounts were $3.3 billion in the quarter — giving the platform about $201 billion in assets, or 42% of total assets.
Ameriprise ended the year with 9,675 advisors, including 77 veteran advisors who joined in the fourth quarter of 2016.
“Ameriprise had a strong fourth quarter and a good year in light of the operating environment,” said Chairman and CEO Jim Cracchiolo, in a statement.
On a trailing 12-month basis, net revenue per advisor (or yearly fees and commissions) grew 1% from 2015 to $518,000.
The Advice & Wealth Management’s pretax margin improved to 19.3% vs. 16.6% a year ago.
7th Place
JPMORGAN
JPMorgan posted a better-than-expected fourth quarter profit of $6.7 billion, or $1.71 a share, as its revenues rose 2% to $24.3 billion. The firm’s Q4’16 earnings experienced a 24% year-over-year improvement.
“Our results this quarter were a strong end to another record year, reflecting our intense client focus and solid performance across our businesses,” said CEO Jamie Dimon, in an earnings release. “We grew market share in virtually all of our businesses and showed expense discipline while continuing to invest for the future.” Shares in the bank were rising over 1% in pre-market trading.
JPMorgan’s investment bank produced a 20% year-over-year increase in sales to $8.4 billion as profits nearly doubled to $3.4 billion.
These results came from a 30-plus% bump in trading revenues, which were $5.7 billion in the period. JPMorgan’s fixed income trading revenues rose 31%, as its equities trading division posted an 8% revenue jump.
Overall expenses at the bank dropped 6%.
The firm’s asset-management unit – which includes both investment and wealth management – has 2,504 financial advisors. This level is down from 2,778 a year ago and 2,506 in the earlier quarter.
Revenues in asset management hit $3.1 billion vs. $3.05 billion in the year-ago quarter; net income rose to $586 million from $507 million.
