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10 Best & Worst Broker-Dealers: Q2 Earnings, 2017

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The majority of large financial institutions have posted their second-quarter earnings. According to Keefe, Bruyette & Woods, Inc., many of these results are in line to better than expected.

As a result, KBW is boosting its earnings-growth forecast for this sector in 2017.

“Nearly across the board, fundamentals are solid,” KBW analysts said in a recent note. “Sentiment for the group also improved … [and] KBW upgraded three banks since earnings season began.”

(Related: 13 Best & Worst Broker-Dealers: Q1 Earnings)

Improvements for major financial institutions are being buoyed by several factors.

“Fundamentals for the group remain positive, as interest rates are higher, credit remains pristine and loan growth is solid,” they explained.

Overall, a large majority of companies across the economy — 77% — have surpassed equity-analysts’ earnings estimates, while 61% have topped revenue estimates, according to David M. Lebovitz, a global market strategist with J.P. Morgan Asset Management.

“It’s been a very strong earnings season – especially for technology, financial and energy firms,” he said during a conference call Wednesday.

Earnings for financials are up about 14% vs. last year, despite “relatively soft capital-market action and other factors,” Lebovitz explained.

As broker-dealers adjust to the new Department of Labor fiduciary rule, several with large independent-advisor groups are reporting much stronger results than they did in the first quarter of 2017.

Read on to see how see how many of the largest broker-dealers did in the final period of 2017.

Worst Broker-Dealer

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

Citigroup (C)

10th Place

Citigroup’s net income fell 3%, the only loss of this BD bunch, in the second quarter 2017 from the prior year to $3.9 billion, or $1.28 per diluted share, on revenues of $17.9 billion.

Citi CEO Michael Corbat said, “During the quarter, we saw continued momentum in our businesses, with loan and revenue growth across both sides of the house. Our Global Consumer Bank posted revenue growth in all three regions. Our Institutional Clients Group had a very strong quarter all-around, including its best Investment Banking performance in seven years.”

As of June 30, Citi’s Common Equity Tier 1 Capital ratio was 13.0%, up from 12.5% in the prior year period, driven primarily by earnings partially offset by capital return. Citigroup’s Supplementary Leverage Ratio for the second quarter 2017 was 7.2%, down from 7.5% in the prior year period, as an increase in Total Leverage Exposure more than offset an increase in Tier 1 Capital.

In the second quarter, the firm repurchased some 29 million common shares and returned a total of roughly $2.2 billion to common shareholders in the form of common share repurchases and dividends.

“Our recently announced 2017 capital plan includes a return of $18.9 billion enabling us to reduce the amount of capital we hold. We are clearly on course to increase both the return on capital and return of capital for our shareholders,” Corbat explained.

Revenues increased 2% from the prior year period, driven by growth in Institutional Clients Group (ICG) and Global Consumer Banking (GCB), partially offset by lower revenues in Corporate and Other units.

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

Goldman Sachs (GS)

9th Place

Goldman Sachs said its net income was flat from last year at $1.631 billion, or $3.95 per share in the second quarter. It had $7.89 billion of revenue.

“A mixed operating environment persisted into the second quarter as conditions continued to support underwriting and M&A, while constraining certain market-making activity,” Goldman CEO Lloyd C. Blankfein said in a statement. “Against that backdrop, we produced revenue growth and improved profitability for the first half of 2017, reflecting both the diversity and strength of our global businesses.”

Revenues from fixed income, currency and commodities dropped 40% from the prior year to $1.16 billion, with the company pointing to “a challenging environment characterized by low levels of volatility, low client activity and generally difficult market-making conditions.”

Though equity trading grew 8% to $1.89 billion, trading revenues overall declined 17% to $3.05 billion. Investment banking revenue fell 3% year over year to $1.73 billion, but rose 2% from the first quarter.

The company declared a dividend of 75 cents a share, unchanged from the prior quarter.

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

Wells Fargo (WFC)

8th Place

Wells Fargo reported second-quarter earnings of $1.07 per share, while revenue came in at $22.17 billion. Total profits were $5.81 billion, up 4.5% from a year ago.

Total average deposits were $1.3 trillion, up $64.5 billion from Q2’16, or 5%; total average loans stood at $956.9 billion, up $6.1 billion, or 1%. Mortgage banking income dropped 18% to $1.15 billion.

The return on equity metric stood at 11.95 percent, ahead of the 10% cost of capital benchmark.

Wealth and Investment Management reported net income of $682 million, up 9% percent from Q1’17 and 17% from Q2’16.

Revenue of $4.18 billion decreased $11 million from the prior quarter, “primarily due to lower gains on deferred compensation plan investments (offset in employee benefits expense) and lower other fee income, partially offset by higher net interest income and higher asset-based fees.”

It was, though, up from the year-ago figure of $3.92 billion.

As of June 30, Wells Fargo said its advisor headcount dropped 3% from a year ago, by about 436 advisors, to 14,527 — a decline of 1% from the earlier period.

Total client assets for the wealth unit rose 8% from a year ago to $1.8 trillion.

News emerged on July 21 that an attorney working with Wells Fargo had shared private information, including Social Security numbers, and compensation details tied to over 50,000 clients and advisors.

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

Bank of America (BAC)

7th Place

Bank of America said its net income rose 10% to $4.9 billion, while net interest income climbed 9% to $11 billion. Earnings per share were $0.46.

Total revenue in the quarter was $3.87 billion for Merrill Lynch and $4.70 billion for BofA Global Wealth, which includes US Trust

Net income before taxes was $1.29 billion for the BofA wealth group. This gives the BofA wealth group a pre-tax margin of 28%. Post-tax net income was $804 million, up 14% from last year.

Merrill Lynch advisors have about $2.2 trillion as of June 30, 2017, and when assets at US Trust are combined with those of Merrill, the Bank of America Global Wealth & Investment Management Group has some $2.62 trillion.

14,811 advisors work for the wealth operations of Merrill Lynch. If Merrill’s consumer banking advisors — which number 2,206 — are included, its ranks swell to 17,017.

Merrill says it added 254 reps in the latest quarter and is up 231 from a year ago.

As for average yearly fees & commission, this figure is $1,040,000 for Merrill’s Thundering Herd. But Merrill also shares the performance of its veteran advisors (which excludes the production of the 3,000 reps in its training program): $1,350,000.

Bank of America’s Global Wealth & Investment Management has fee-based assets of $991 billion, or 38% of total assets.

In the second quarter, BofA wealth had net client flows $27.5 billion. BofA says its wealth-management group clients had a total of $156.3 billion in loans and leases, which include margin receivable.

The unit’s net interest income was $1.60 billion in Q2’17.

James Gorman, CEO of Morgan Stanley. (Photo: AP)

Morgan Stanley (MS)

6th Place

Morgan Stanley reported net revenues of $9.5 billion in the second quarter, and earnings per share of 87 cents, an 11% increase for the year-ago period.

Revenues from institutional securities, wealth management, and investment management were all higher than a year ago for the company, which is led by James Gorman.

The Morgan Stanley Wealth Management unit has some $2.24 trillion in client assets as of June 30.

It also includes 15,777 advisors. Morgan Stanley says its headcount was flat vs. the earlier period and is down 132 from a year ago.

Morgan Stanley’s advisors have 12-month-trailing production of $1,050,000. They have an average level of assets per advisor of $142 million.

The wealth unit had sales of $4.15 billion in Q2’17. Net income before taxes was $1.06 billion at Morgan Stanley, giving it a pre-tax margin of 25%.

The post-tax net income of the group was $665 million, up 29% from a year ago.

The group has fee-based assets of $960 billion, or 43% of total assets. In the second quarter, Morgan Stanley had fee-based flows of $19.9 billion.

Morgan Stanley Wealth Management clients’ loan balances stood at $77 billion as of June 30, while its net interest income in Q2’17 was $1.01 billion.

UBS Bank building entrance and sign.

UBS Group (UBS)

5th Place

UBS Group had a 14% jump in net income to 1.174 billion Swiss francs ($1.21 billion) in the second quarter. Revenues, though, weakened 2% to 7.26 billion Swiss francs.

“Improved investor sentiment and enhanced confidence have translated into improvements in wealth management client activity levels,” the bank said in a statement. “However, the persistence of low volatility levels and seasonality factors may continue to affect overall client activity.”

Wealth Management Americas had a 26% jump in pre-tax profits to $304 million.

Revenues rose 11% to $2.1 billion from last year, “mainly due to record recurring net fee income, record net interest income and higher transaction-based income.”

The group is decreasing recruiting loans to advisors, which fell 15% year-over-year in Q2’17 to $2.75 billion.

However, the firm’s headcount is also weakening: the firm has 6,915 financial advisors, down from 6,969 in the prior quarter and 7,116 a year ago.

Its reps have average annualized revenue of $ 1.23 million and average invested assets per FA of $169 million, beating out rivals Morgan Stanley and Merrill Lynch overall. (Merrill says that after its advisors in training are excluded, average production is $1.35 million.)

Ameriprise Financial Headquarters in Minneapolis.

Ameriprise Financial (AMP)

4th Place

Ameriprise Financial said its second quarter 2017 net income rose 17% from a year ago to $393 million, or $2.50 per diluted share.

Net revenues of $3.0 billion increased 4 percent, or $114 million, from a year ago, mainly due to strong revenue growth in Advice & Wealth Management, according to the company.

After adjusting for the net impact of advisors transitioning client accounts to share classes without 12b-1 fees, net revenues increased 6% thanks to strong net revenue growth in Advice & Wealth Management from growth in client assets.

“Ameriprise delivered strong results in the second quarter led by significant gains in wealth management,” said Jim Cracchiolo, chairman and chief executive officer.

“We’re generating good growth that reflects the value of the advice and the solutions we provide our clients. In this low volatility environment, clients are putting their money to work, which fueled a record quarter for net inflows in fee-based investment advisory accounts at $4.5 billion and nice gains in advisor productivity,” he added.

Advice & Wealth Management client assets increased to $512 billion. Fee-based investment advisory (wrap) net inflows were $4.5 billion in the quarter, bringing platform AUM to $222 billion.

Ameriprise has some 9,640 advisors, with 81 experienced advisors joining the firm during the quarter. Its average trailing 12-month fees and commissions per rep were $541,000.

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

JPMorgan (JPM)

3rd Place

JPMorgan’s profits rose 13% to $7.03 billion, or $1.82 per share, from $6.20 billion, or $1.55 per share a year earlier. Revenues grew 4% year over year to $25.5 billion.

These results included a $406 million after-tax benefit from a legal settlement tied to the bank’s purchase of Washington Mutual.

“We continued to post very solid results against a stable-to improving global economic backdrop,” JPMorgan CEO Jamie Dimon said in a release. “The U.S. consumer remains healthy, evidenced in our strong underlying performance in Consumer & Community Banking.”

Average loans in consumer and community banking rose 3% percent from last year, while core loans climbed 9 percent. Overall market trading revenue declined 14%; fixed income trading fell 19% “due to reduced flows driven by sustained low volatility and tighter credit spreads, against a strong prior year,” the bank said. And revenue from stock trading dropped 1%.

In terms of its Assets and Wealth Management unit, total assets stand at $2.6 trillion. The unit had sales of $3.2 billion and net income of $624 million in Q2’17.

It includes 2,452 client advisors, down from 2,480 in Q1’17 and 2.633 in Q2’16.

LPL Financial headquarters in San Diego.

LPL Financial (LPLA)

2nd Place

LPL Financial said Thursday that it improved its profits by 43% in the second quarter to $68.4 million, or $0.74 per share, from $47.9 million, or $0.53 per share, a year earlier. Revenues, though, rose just 5% to $1.07 billion.

Its total brokerage and advisory assets stand at $542 billion, up 11% from last year. Advisory assets grew 5% from a year ago to $237 billion, or about 44% of total assets. Total hybrid-platform assets are $166.4 billion, or 31% of total assets; they grew 26% from their year-ago level.

“We remain focused on our strategic priorities of growing our core business and executing with excellence,” said Dan Arnold, president and CEO, in a statement. “We continue to enhance the retail investor experience and help advisors grow their business by enriching our advisory solutions and transforming our client statements. Our growth in advisory assets reflects our advisors using these enhancements to win in the marketplace.”

The number of affiliated advisors is 14,256, down nearly 100 from the prior quarter’s 14,354 but up from 14,193 a year ago. Its base of clearing subscribers continues to decline and ended the quarter at 3,703. The level of total client accounts is stable, though, at 4.6 million.

Net new brokerage assets continue to experience outflows, which were $5.5 billion in Q2’17, translating to a 7% annualized rate of losses.

Net new advisory assets had inflows of $5.9 billion, representing a 10% annualized growth rate. Overall, total net new assets had inflows in Q2’17 of $0.4 billion, representing a yearly growth rate of 0.3%.

LPL’s advisors have average assets of about $38 million. Their average trailing-12-month fees & commissions were $215,000 as of June 30.

Best Broker-Dealer

Paul Reilly, CEO of Raymond James Financial.

Raymond James Financial (RJF)

1st Place

Raymond James Financial (RJF) said it had profits of $183.4 million, or $1.24 per share, in the quarter ended June 30 — up 46% from $125.5 million, or $0.87 per share, a year ago. Total revenues jumped 20% year over year to $1.7 billion.

The firm says the results largely came from the growth of client assets tied to its net recruiting of financial advisors and market appreciation, along with “strong investment banking revenues and the positive impact from higher short-term interest rates on both net interest income and account and service fees.”

The total number of independent and employee advisors stands at 7,285—up 451 from a year ago and 63 from the earlier quarter.

“Record quarterly results were driven by record revenues in the Private Client Group segment, Asset Management segment, and Raymond James Bank,” said Chairman and CEO Paul Reilly, in a statement.

The Private Client Group had net revenues of $1.13 billion, up 25% from last year and 4% over the preceding quarter.

Its pre-tax income was $128.0 million, up 56% from a year ago and 336% from the prior quarter.

The group’s assets under administration of $631.5 billion, an increase of 25% percent from a year ago and 3% over March 2017.

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