Several (but not all of the) major stock indexes recovered in the first quarter of 2014 after a weak start to the year. Many broker-dealers that help investors purchase equities and bonds generally benefited from the market's upswing.
Still, there were some notable winners and losers in the group, with several affected by legal issues and expenses, as in recent periods.
Overall, earnings for firms in the financial industry/sector – as tracked by Reuters – rose about 17% in Q1'14. The five-year EPS for the group is averaging 25%.
(Related ThinkAdvisor story: 12 Best & Worst Broker-Dealers: Q4 Earnings, 2013)
The group's positive results in the quarter have helped push the Select Sector Financial SPDR ETF (XLF) up about 2% so far this year.
Read on to see which 12 broker-dealers outperformed the financial industry's average EPS growth rate – and which ones underperformed.
WORST
12th Place
BANK OF AMERICA (BAC)
Bank of America lost $276 million in the first quarter of 2014, compared to net income of $1.5 billion, a year ago. In addition, revenue (net of interest expense) declined 3% year over year to $22.8 billion.
The company—led by Brian Moynihan—notes that these results include $6.0 billion in litigation expense related to a settlement with the Federal Housing Finance Agency and additional reserves tied to legacy mortgage-related matters.
BofA's Global Wealth and Investment Management unit, which includes Merrill Lynch and U.S. Trust, had revenues of $4.55 billion, up about 3% from the year-ago quarter and a 1.6% improvement from Q4'13.
The number of Merrill Lynch financial advisors, though, dropped by 47 to 13,725, primarily driven by the continued attrition of underperforming advisor trainees in its Practice Management Development program, according to the firm.
FA productivity, or yearly fees and commissions, stands at $1.3 million per experienced advisor; total FA productivity is roughly $1.06 million as of Q1'14, up from $1.04 in Q4'13 and $971,000 in Q1'13. "As of March, 45% of our advisors had 50% or more of their client assets under a fee-based relationship," the bank said in a statement.
11th Place
JPMORGAN CHASE (JPM)
JPMorgan Chase reported first quarter earnings of $5.3 billion, a 19% drop from a year ago. The bank earned $1.28 a share compared with $1.59 in Q1'13. Revenue fell 8% from last year's first quarter to $23.9 billion.
The firm's fixed-income revenue of $3.8 billion was down 21% from a year earlier. Consumer and community banking also had a decline in sales; net revenue tied to these operations fell $1.2 billion, or 10%, to $10.5 billion.
Plus, mortgage loan originations of $17 billion were 68% off of Q1'13 and 27% from the prior quarter.
In other financial results, JPMorgan said it set aside $850 million for credit losses, up from $617 million a year earlier. "It's not going to affect the underlying business," said CEO Jamie Dimon, who added that the legal settlements similarly had not appeared to harm the bank's reputation.
JPMorgan says its asset-management operations include 2,925 advisors, up from 2,797 a year ago but down from 2.962 in the prior quarter. The units profit margins fell to 26% from 29% in both the year-ago and prior periods.
10th Place
GOLDMAN SACHS (GS)
Goldman said its Q1'14 net income fell about 11% to $1.95 billion, or $4.02 per share, from $2.19 billion, or $4.29 per share, in the year-ago period. Total net revenue dropped 8% to $9.33 billion.
"Investment Banking and Investment Management generated solid results, while market sentiment shifted throughout the quarter, constraining client activity in various parts of our franchise," Chairman and CEO Lloyd Blankfein said in a statement.
Goldman's revenue from fixed income, currency and commodities (FICC) trading decreased 11% year over year to $2.85 billion. Its debt-underwriting revenue fell 5% to $660 million. Revenue tied to investing and lending, though, weakened 26% percent to $1.53 billion.
Investment management revenue jumped 20% to $1.57 billion, though, and equity underwriting revenue rose 12% to $437 million.
Analysts point out that this is the bank's fifth consecutive year of declining revenue. In 2009, fixed-income trading represented over 40% of total sales.
9th Place
LPL FINANCIAL (LPLA)
LPL Financial's net income in the period ending March 31 fell about 3% year over year to $53.1 million, though net revenue jumped close to 12% to nearly $1.1 billion. Adjusted earnings, though, rose 4% to $71 million, or $0.69 per share. Higher costs and lower recruiting results in the period were cited as reasons for the recent performance, and the company's executives—led by Mark Casady—are upbeat on results for the rest of 2014.
The independent broker-dealer's core general and administrative expenses were $162 million, up 11% year over year (but down 3% sequentially). Also during the quarter, the company's payout ratio to advisors grew 38 basis points to 86.4%.
The company has 13,726 affiliated advisors, up from 13,673 in Q4'13 and 13,377 in Q1'13. Advisory and brokerage assets rose to $447.1 billion, a 13.5% year-over-year increase, in the latest period.
Average fees and commissions per rep are about $252,000 vs. $254,000 in the prior period and $230,000 a year earlier. Average commissions as of Q1'14 stood at $156,000; excluding alternatives, this figure is $152,000, which represents a 4% jump from last year and a 1% increase from the prior period.
Assets under custody on its independent-RIA platform grew nearly 50% to $69.6 billion from $46.7 billion last year. These results include 265 independent RIA firms, compared with 199 independent RIA firms 12 months earlier.
The company says its fee-based business generated $4.4 billion in net new advisory assets. Average assets managed by advisors jumped 13.5% to $33 million per rep vs. $29.5 million a year ago.
8th Place
CITIGROUP (C)
First-quarter net income at Citigroup rose 3.5% to $3.94 billion, or $1.23 a share, from $3.81 billion, or $1.23, a year earlier. Excluding accounting charges and a tax item, profit was $1.30 a share, beating estimates.
Profit was boosted by improving results in a portfolio of unwanted assets the bank has marked for sale. Plus, losses in the Citi Holdings unit fell to $284 million in the first quarter from $804 million a year earlier, as mortgage results improved. Revenue at the division rose 61% from a year earlier to $1.46 billion.
Total revenue for the quarter, though, fell 1% year over year to $20.1 billion as expenses also decreased 1% to $12.1 billion.
Earlier this year, Citigroup, which is led by Michael Corbat, failed an annual stress test administered by the Federal Reserve, which cited deficiencies in the bank's ability to project revenue and losses in its global operations. Regulators rejected the firm's request to quintuple its dividend and repurchase $6.4 billion of shares.
7th Place
UBS (UBS)
UBS reported that its first-quarter profits improved about 7%. It had net income of 1.05 billion Swiss francs, or about $1.2 billion, vs. 988 million Swiss francs a year ago. The company's revenue in Q1'14 was about $7.23 billion, a drop of roughly 7% from last year. It is led by Group CEO Sergio Ermotti.
