12 Best & Worst Broker-Dealers: Q2 Earnings, 2015

By Janet Levaux

Slideshow September 02, 2015 at 08:59 AM

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In a prelude to the market meltdown (or at least madness) in the third quarter, the second quarter of 2015 saw slight declines in the S&P 500 and Dow Jones indexes. It also was a volatile time for the markets, with many asset classes turning in lackluster performance.

During the April-to-June period, the U.S. dollar weakened vs. the euro by nearly 4%, but improved vs. the yen by close to 2%. Gold prices dropped 1%, while oil gained a whopping 25%.

Some of the larger financial firms improved profits. But others had flat or poor results, as trading weakened and legal costs continued to impact expenses.

Earnings for the financial sector improved about 7% in Q2, though sales improved 19% on average.

Despite the overall market weakness, the Financial Select Sector SPDR ETF (XLF) rose 2% in Q2, while the iShares US Broker-Dealer ETF (IAI) improved 3%.

Read on to see which of these 12 broker-dealers' profits grew fastest, and which ones underperformed in terms of earnings per share.

(Related on ThinkAdvisor: 12 Best & Worst Broker-Dealers: Q1 Earnings)

WORST BROKER-DEALER

12th Place

STIFEL FINANCIAL (SF)

Stifel Financial Corp.'s profits plummeted 52% in the second quarter due to merger-related expenses. Stifel reported a net income of $20.9 million, or 27 cents per share, compared with $43.6 million, or 58 cents per share, a year earlier.

Excluding $54.7 million in expenses related to mergers, Stifel reported adjusting earnings of 71 cents a share, slightly less than the 73 cents that analysts, on average, had expected, according to Thomson Reuters.

Net revenue increased about 7% to $597.8 million for the St. Louis-based company thanks to improvements in the asset management and investment banking businesses.

The group, which recently bought Sterne Agee and is in the process of acquiring Barclays U.S. advisors, says the number of financial advisors now stands at about 2,800, a 35% increase from the prior quarter and year.

11^thPlace

GOLDMAN SACHS (GS)

Investment bank Goldman Sachs said its earnings dropped nearly 50% due to litigation expenses, which trimmed $2.77 a share from its second-quarter profit.

The bank earned $1.05 billion, or $1.98 a share, on revenue of $9.07 billion. Last year Goldman reported net income of about $2.04 billion, or $4.10 a share, on revenue of $9.12 billion.

Analysts had expected earnings of $3.85 a share on revenue of $8.74 billion, according to FactSet.

During the quarter, the firm recorded a $1.45 billion provision for "mortgage-related litigation and regulatory matters," which reduced earnings by $2.77 a share. Without those expenses, Goldman would have posted earnings of $4.75 a share, beating analysts' expectations.

Goldman said revenues from its investment banking and financial advisory businesses improved, but sales from trading dropped.

10^thPlace

RCS CAPITAL (RCAP)

RCS Capital, the parent company of Cetera Financial that was founded by Nicholas Schorsch who left the company, saw its net loss grow to 36% year-over-year, or by nearly $18 million, to $66.1 million ($-1.11 per share) from a loss of $48.5 million (-$3.59 per share) a year ago. Total revenue dropped 23% in the second quarter of 2015 to $678.4 million.

The company had revenue specifically from equity sales in its wholesale business of $107.2 million in Q2, down 67% from the prior year; equity-product revenue was $89.1 million in Q1, off 50% from a year earlier.

As a result, RCAP announced it is selling this business to Apollo Global Management for $25 million in cash. Its advisor-focused business, Cetera Financial Group, plans to work with Apollo in order to sell alternative products through its 9,500 independent advisors.

Plus, RCS Capital says Apollo and affiliates of Luxor Capital Group plan to invest $37.5 million ($25 million from Apollo and $12.5 million from Luxor) in the company through newly issued preferred stock.

Last year, American Realty Capital Properties (ARCP) reported $23 million of accounting errors, and at the time, Schorsch was executive chairman of both entities. RCAP distributes ARCP products, which have included nontraded REITs. This, in part, prompted RCAP to renege on its planned purchase of ARCP's Cole Capital business for $700 million, and ARCP then moved to sue its investment partner. (ARCP rebranded itself as VEREIT last week (VER).

In the past 12 months, its stock has weakened sharply, with its shares trading around $2. (It hit a two-year high of about $39.50 in early-April 2014.)

9th Place

MORGAN STANLEY (MS)

Morgan Stanley reported a 5% weakening of net income to $1.8 billion, or $0.85 per share, compared with net income of $1.9 billion, or $0.92 per share, in Q2. The company beat earnings estimates with these results.

In Wealth Management, after-tax income was $561 million — a jump of 20% from a year ago and 5% from Q1 2015.

"We delivered a strong quarter across each of our businesses, through client-focused execution, expense discipline and prudent risk management. We remain focused on delivering the long-term value of this franchise," said Chairman and CEO James P. Gorman, in a statement.

The number of advisors was 15,771 as of June , down from 15,916 in Q1'15 and 16,316 in Q2'15. Average annualized revenue per rep (or fees and commissions) rose 8% from a year ago to $978,000, behind the production level of both Merrill Lynch and UBS.

Total client assets were $2.03 trillion, or roughly $203 million per rep. As of June 30, the transfer of deposits from Citigroup was completed, totaling $4 billion. Wealth Management bank deposits were $132 billion as of Q2.

Morgan Stanley's Wealth Management unit reported pretax income from continuing operations of $885 million compared with $763 million in the second quarter of last year. The quarter's pretax margin was 23%, vs. 22% in the prior quarter and 21% a year ago.

8^th Place

WELLS FARGO (WFC)

Wells Fargo said it had a slight, 0.2%, drop in its second-quarter net income to $5.72 billion, or $1.03 a share, versus $5.73 billion, or $1.01 a share last year. Revenue, however, was up 1% to $21.3 billion.

Its wealth, brokerage and retirement unit had income of $602 million in the period, an 11% jump from last year and 7% improvement from the prior quarter. Revenue expanded 5% year over year to $3.74 billion.

The unit's brokerage advisory assets grew 6% from last year to $434 billion, while wealth-management assets increased 2% to $224 million. The group had a pre-tax margin of 26%, topping its 25% goal.

In addition, the firm says it brought on 17 net new financial advisors during the quarter, bringing its total headcount to 15,151. Average loans among its wealth and brokerage clients were $59.3 billion, up 16% from last year. Managed account assets grew 6% to $434 billion.

Total assets for the wealth unit were $1.4 trillion, and assets in individual retirement account assets were $365 billion.

7^thPlace

JPMorgan Chase & Co. (JPM)

JPMorgan, the biggest U.S. bank by assets, said second-quarter profit climbed 5%, as the firm cut costs to compensate for falling revenue in two of its largest businesses.

Net income advanced to $6.29 billion, or $1.54 a share, from $5.98 billion, or $1.46. Twenty-nine analysts surveyed by Bloomberg estimated $1.45 a share.

Noninterest expenses fell 6% to $14.5 billion, while revenue declined 3% to $24.5 billion.

Earnings at the corporate and investment bank grew 10% to $2.34 billion on a 15% drop in expenses to $5.14 billion. Revenue slipped 6% to $8.72 billion amid sluggish fixed-income trading.

Profit in asset management slid 21% to $451 million, which the company attributed to higher legal costs and a loss on a held-for-sale asset. Assets under management climbed 4% to $1.8 trillion amid greater inflows and rising equity markets.

JPMorgan agreed in May to plead guilty to a felony charge for conspiring to manipulate currencies, paying almost $900 million in fines to U.S. authorities. The bank, which had already set aside reserves for the costs, said the blame was "principally attributable" to a trader who had left the company.

6th Place

RAYMOND JAMES FINANCIAL (RJF)

Raymond James beat earnings estimates with net income jumping 9% in the quarter ended June 30 to $133.2 million, or $0.91 per share, from $122.7 million, or $0.85 per share, a year earlier. Net revenue was about $1.3 "We continue to benefit from very robust financial advisor retention and recruiting results, which has helped us achieve quarter-end records for both client assets under administration and financial assets under management," said CEO Paul Reilly, in a statement.

The Private Client Group had net revenues of $892 million, a 9% jump from a year ago, and quarterly pretax income of $86.4 million, a 6% year-over-year improvement.

The unit's assets under administration were $475.4 billion, up 5% from a year ago and 1% from the earlier quarter. Fee-based assets (at 39% of AUA) stood at $186.2 billion on June 30 — a jump of 11% from a year ago.

The number of financial advisors in the company is 6,507, a gain of 256 reps from last year and 123 from the earlier quarter.

Based on the PCG's past 12 months of fees and commissions, which totaled roughly $2.9 billion, the advisors have an average production level of $447,800 for the year ended June 30.

5^th Place

AMERIPRISE FINANCIAL (AMP)

In the June 30 quarter, Ameriprise had net income from continuing operations of $415 million, or $2.23 per share, up 11% from a year ago, when its net income was $374 million, or $1.91. Adjusted net income rose 6% year over year to $434 million. Sales were $3 billion.

"Our second quarter results reflect good performance with continued strength in Advice and Wealth Management," said Jim Cracchiolo, chairman and CEO, in a statement.

Advice and Wealth had revenue of $1.3 billion, up 6% from a year ago, and pretax net income of $220 million, a year-over-year jump of 13%; the unit's pretax margin was 17.3% as of June 30.

Total retail client assets were $453 billion, "up more than $18 billion from the prior year driven by client net inflows, new client acquisition and market appreciation," according to Ameriprise.

Wrap net inflows were $3.3 billion with wrap balances rising 8% to $182 billion. "The combination of strong asset growth and client activity drove a 9% increase in operating net revenue [or fees & commissions] per advisor on a trailing-12-month basis to $512,000."

The company's financial supplement for Q2'15 shows it has 9,721 advisors — of which 7,639 are independent or franchisee reps and 2,082 are employee FAs. The total figure is up slightly for 9,672 as of March 30 and 9,692 a year ago.

4^th Place

LPL FINANCIAL (LPLA)

LPL Financial said its net income rose 17% in the second quarter to $50.2 million on flat revenue of $1.09 billion.

Its adjusted earnings rose 2% to $63.2 million, or $0.65 cents a share, from $61.8 million, or $0.61 per share – beating analysts' EPS estimates by $0.01, though revenue missed expectations by about $10 million.

Total assets in advisory and brokerage accounts rose 4% from last year to $486 billion. Hybrid RIA assets represented $112 billion, or 23% of total assets. Net new advisory assets were $18 billion for the past year.

"Our value proposition remains strong as demonstrated by solid asset growth, recruiting and gross profit expansion over the past 12 months," said Chairman and CEO Mark Casady, in a statement.

The company insists that it is overcoming regulatory and compliance hurdles. It had costs of $6.7 million tied to these issues in Q2.

It says net new advisory assets, excluding the impact of market movement, were $4.3 billion in Q2. These flows were mainly driven by "solid recruiting and advisor productivity," according to the independent broker-dealer.

Hybrid RIA assets grew 36% to $111.6 billion, representing 359 hybrid RIAs vs 282 a year ago. Overall, LPL say it added 290 net new advisors over the past 12 months.

3rd Place

UBS AG (UBS)

UBS Group said its second-quarter 2015 net profit was 1.2 billion Swiss francs ($1.3 billion), surging 53% compared with the second quarter of 2014, with diluted earnings per share of 0.32 Swiss francs. Its overall revenue increased 8.5% from a year ago to 7.8 billion Swiss francs ($8.1 billion) in the second quarter.

"I am pleased with the quarter," said Sergio P. Ermotti, group chief executive officer at UBS, in a statement. "We maintained our momentum despite ongoing market challenges."

The group's wealth management operations in the Americas reported an adjusted profit before tax of $231 million, a drop of nearly 7% from the same year-ago period and close to 27% from the prior quarter.

Net new money (NNM) was slightly negative at -$0.7 billion for the Wealth Management Americas division, compared to a positive $4.8 billion in the first quarter. Including interest and dividends, net new money was $5.1 billion in Q2'15, down from $10.3 billion in the first quarter.

UBS' advisor headcount in the Americas was 6,948 as of June 30, down slightly from 6,982 in the first quarter and a decrease of 2% from 7,119 a year ago. Total client assets reached $1.09 trillion as of June 30, a jump of 2% from a year ago but down slightly from $1.10 trillion in Q1'14.

Yearly revenue (or fees and commissions) per advisor stood at $1.12 million in the second quarter, up 3% from the first quarter and 5% from a year ago. Averaged invested assets per advisor reached $150 million in Q2, remaining stagnant from Q1 but up nearly 5% from a year ago.

2nd Place

BANK OF AMERICA (BAC)

Bank of America's second-quarter earnings lept over 100%. Its net income more than doubled to $5.3 billion, $0.45 per share, vs. $2.3 billion, or $0.19 per share, in the year-ago period. Revenue, net of interest expense, increased 2% to $22.3 billion.

BofA CEO Brian Moynihan told analysts that the company's results were lifted by "solid core loan growth, higher mortgage originations and the lowest expenses since 2008." This allowed the bank to report its "strongest earnings in several years," he said.

Still, its wealth management operations had net income of $690 million, down from $726 million in the second quarter of 2014. Revenue was $4.57 billion, down slightly from a year ago, while the pre-tax margin was 24%.

The number of financial advisors is about 16,419, up from 15,560 last year and 16,175 in the prior quarter. These reps had yearly fees and commissions of $1.04 million on average as of June 30, unchanged for the earlier period but down slightly from a year ago.

Wealth management chief David Darnell recently announced plans to retire by the fourth quarter, after more than 35 years with the company. Upon Darnell's retirement, Terry Laughlin will take over as head of the wealth group.

BEST BROKER-DEALER

1^st Place

CITIGROUP (C)

The bank's net income rose an incredible 2,500%–yes, that is two thousand five hundred–to $4.85 billion, or $1.51 per share, from $181 million, or 3 cents per share, a year earlier, when the bank had a nearly $4 billion legal charge.

After adjusting for legal costs and some accounting items, Citi's net income improved a nifty 18% to $4.65 billion, or $1.45 per share, from $3.93 billion, or $1.24 per share, a year earlier.

Revenue ticked up slightly to $19.5 billion from about $19.4 billion a year ago.

Wall Street expected Citigroup to deliver quarterly earnings of $1.34 on $19.1 revenue, according to consensus estimates from Thomson Reuters.

Recently, Scotiabank said it would buy Citigroup's retail and commercial banking operations in Panama and Costa Rica. Citigroup will continue to operate in these countries, with an emphasis on Corporate and Institutional Banking Business and International Wealth Management Services.

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