12 Best & Worst Broker-Dealers: Q1 Earnings, 2013

By Janet Levaux

May 30, 2013 at 09:37 AM

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Earnings for the financial services sector improved an average of 53% in the quarter ended March 31, according to data compiled by Reuters. This was down from an 85% average EPS jump in the quarter ended Dec. 31, 2012.

Sales for financial services firms moved up 20% on average in Q1 2013, after improvement of more than 50% in Q4 2012. The sector's 12-month sales growth rate is 12% on average, as of March 31.

The financial-services sector's earnings-per-share growth rate over the past five years is about 27%, Reuters says. Sales momentum has averaged around 14% for the same period.

Morgan Stanley and Bank of America had strong improvements in their quarterly results. Stifel Nicolaus, meanwhile, saw its results negatively impacted by several large acquisitions.

Here are 12 companies, ranked in terms of how they out- or underperformed their broker-dealer rivals.

(Check out last quarter's winners and losers in 12 Best & Worst Broker-Dealers: Q4 Earnings at AdvisorOne.)

WORST

12th Place

STIFEL FINANCIAL (SF)

St. Louis-based Stifel Nicolaus had net income of $14.62 million, or $0.21 per share, in Q1'13 vs. $34.8 million, or $0.55 per share, a year earlier. This represents a drop of 58% in earnings and 62% in EPS.

Stifel's net revenues, though, grew close to 6% year over year to $441.8 million, compared with $400.3 million for the first quarter of 2012. Its total global wealth management operations accounted for $267 million of sales, while the private-client segment produced $158.3 million of revenue.

Two items significantly impacted GAAP results for the latest quarter: a noncash after-tax charge of $19.2 million, or $0.28 per share, related to stock awards issued in connection with the acquisition of KBW, an investment bank and broker-dealer, and after-tax expenses of $6.1 million, or $0.09 per diluted share, associated with buying both KBW and the investment bank Miller Buckfire, according to the company.

Stifel has about 2,063 financial advisors, up 50 from last year and 22 from the prior quarter.

11^th Place

UBS (UBS)

UBS (UBS) had a first-quarter net profit of 988 million Swiss francs ($1.06 billion), or 0.26 Swiss francs ($0.28) per share, down slightly from 1.035 billion Swiss francs ($1.11 billion) a year ago, or 0.27 Swiss francs ($0.29) per share—beating analysts' estimates.

This represents a drop in earnings of 4.5% and an EPS decline of 3.7%, which is a huge improvement for the firm. In Q4'12, the global bank lost 2.2 billion Swiss francs (or about $2.4 billion), due to LIBOR troubles and related issues.

"While it is too early to declare victory, we have shown our business model works in practice," said UBS Group CEO Sergio P. Ermotti in a press release.

The company says the Wealth Management Americas unit "achieved another record profit and strong net new money inflows." The Americas operations reported adjusted quarterly profits before tax of $262 million in the first quarter of 2013, compared with $219 million in the prior quarter.

The number of UBS financial advisors in the Americas is 7,065, up 6 from the prior quarter and 50 from a year ago. Client assets under management total $936 billion versus $885 as of Dec. 31 and $851 billion as of March 31, 2012. 10^th Place

TD AMERITRADE (AMTD)

TD Ameritrade (AMTD) reported a 5% rise in profits for the first quarter: $144 million vs. $137 million a year ago, citing 11% client asset growth for the second fiscal quarter. Earnings per share were $0.26 compared with $0.25 a year ago, an improvement of 4%.

The company reported net second-quarter revenues of $679 million, 55% of which were asset-based, vs. $673 million a year ago. Average investor client trades per day totaled roughly 378,000, versus 387,571 a year ago.

Net new client assets were $12.9 billion versus $10.8 billion a year ago.

TD Ameritrade said it had fee-based revenue of $62 million, up 38% year over year, as well as client assets of about $517 billion.

"While retail investor sentiment has improved, a large number of investors remain cautious in this environment, and yet we continue to execute well against our strategy and on the items we can control," said Fred Tomczyk, president and CEO, in a statement.

9^th Place

GOLDMAN SACHS (GS)

Goldman Sachs said its first-quarter earnings were up 7% as net income hit $2.26 billion in the first quarter, up from last year's $2.11 billion.

Diluted earnings per common share was $4.29 compared with $3.92 for the first quarter of 2012—a 9% jump—while revenue rose 1% to $10.09 billion.

"We are pleased with our performance for the quarter," said Chairman and CEO Lloyd C. Blankfein, in a press release. "Our strong client franchise across our businesses drove generally solid results. Still, the potential for macroeconomic instability was felt in the quarter and constrained overall corporate and investor activity. We continue to be very focused on controlling our costs and efficiently managing our capital."

In terms of sales by segment, the company said its institutional client-services group increased revenue 10% year over year to $5.1 billion; investing and lending revenue grew 8% to $2.1 billion, while investment management sales rose 12% to $1.3 billion. Investment banking revenues jumped 36% to $1.57 billion in Q1'13.

8^th Place

RAYMOND JAMES FINANCIAL (RJF)

Raymond James had net income for the quarter ended March 31 of $80 million—up 16% from $69 million a year ago. On an EPS basis, its results improved 8% to $0.56 per share vs. $0.52 per share in the year-ago period. (Excluding special items, earnings were $0.68 per share on net income of $96.5 million.)

Revenues for the St. Petersburg, Fla.-based broker-dealer were $1.14 billion, a jump of 31% from the year-ago period. The sales results topped analysts' expectations and reflect, in part, the addition of results produced by some 900 advisors and other employees of Morgan Keegan, which the company acquired last year.

The Private Client Group reported fees-and-commissions growth of about 31% over last year to $615.2 million. Sales for the group were $726.8 million, an increase of 28% year over year. Pre-tax income for the group grew 14% from last year to $52.7 million.

The headcount for advisors in PCG worldwide was 6,297—up from 6,289 as of Dec. 31 and 5,396 a year before. In the United States, the unit includes 5,431 independent and employee reps, a slight increase from 5,427 in the earlier quarter and a jump of about 900 from 4,532 in March 2012 (before the Morgan Keegan purchase).

Wells Fargo branch in San Francisco (Photo: AP) 7^th Place

WELLS FARGO (WFC)

Wells Fargo & Co. (WFC), the nation's largest mortgage lender, reported $5.17 billion in profits, up 22% from last year's $4.25 million, with EPS of $0.92 vs. $0.75 a year ago, a jump of 23%.

Its retail-brokerage operations had client assets of $1.3 trillion, up 7% from the prior year. Managed-account assets increased $46 billion, or 16%, from the prior year, driven by strong net flows and market performance, the bank says.

The unit also experienced strong deposit growth, with average balances up 13% from a year earlier.

The wealth management segment had client assets of $208 billion, a 3% year-over-year boost, with average deposit balances up 7%.

Total revenue at Wells was down 1.7% to $21.26 billion after the bank took a 2.6% hit to its mortgage business, and low interest rates hurt profitability despite an 8% rise in deposits, analysts said.

"Wells Fargo delivered outstanding first-quarter 2013 results for our shareholders," said Chairman and CEO John Stumpf in a statement. "Quarterly earnings and EPS increased at double-digit rates compared with first-quarter 2012, while loans and deposits demonstrated continued growth in a challenging economic environment."

Wells' Wealth, Brokerage and Retirement unit reported net income of $337 million, up 14% from a year ago but down 3% from Q412. Client assets for the retail brokerage were $1.3 trillion, up 5% quarter on quarter and up 7% year on year.

Financial advisors in the retail brokerage were reported at 15,354, flat from Q4'12 and up 1% from a year ago.

Managed-account assets increased $46 billion, or 16%, from the prior year, driven by strong net flows and market performance, the bank says. The unit also experienced strong deposit growth, with average balances up 13% from a year earlier.

6^th Place

CITIGROUP (C)

Citigroup (C) reported a first-quarter profit of $3.8 billion, or $1.23 a share, topping analysts' estimates by $0.05, thanks to its ability to cut costs and unload troubled assets. These results represented a 31% improvement in net income and a roughly 30% jump in EPS.

The bank also reported higher revenue of $20.5 billion vs. estimates of $20.2 billion, noting particular success in its investment-banking unit. After adjustments, the company reported a profit of $4 billion on revenue of $20.8 billion.

"Achieving consistent, high-quality earnings is one of my top priorities, and these results are encouraging," Michael L. Corbat, the bank's CEO, said in a statement. "During the quarter, we benefited from seasonally strong results in our markets businesses, sustained momentum in investment banking, continued year-over-year growth in loans and deposits in Citicorp, and a more favorable credit environment."

5^th Place

JPMORGAN CHASE (JPM)

JPMorgan Chase & Co., the nation's largest bank, saw a 33% rise in profits to a record $6.53 billion over last year's $4.92 billion. Meanwhile, earnings per share of $1.59 jumped 34% from $1.19 in the year-ago quarter.

"JPMorgan Chase had a very good start to the year," said Chairman and CEO Jamie Dimon in a statement. "All our businesses had strong performance, and our client franchises did exceptionally well."

However, Dimon acknowledged continued weak spots in the economy that were a drag on the bank's performance.

Separately, J.P. Morgan Asset Management saw its 16th consecutive quarter of positive net long-term client flows at a record $31 billion for Q1 and record assets under supervision at $2.2 trillion, with loan balances up 27% to a record $81.4 billion.

JPAM reported a 1% quarter-on-quarter loss in client advisors to 2,797 from 2,821 but a 2% rise in retirement planning services participants, to 2.01 million from 1.96 million.

The asset management unit also reported a 1% year-on-year loss in advisors, who numbered 2,832 in Q1 2012, but a 4% rise in retirement participants from 1.93 million to the current 2.01 million.

4^th Place

LPL FINANCIAL (LPLA)

LPL Financial produced net income of $54.7 million, or $0.51 a share, vs. $41.2 million, or $0.37 a share—a 33% jump in earnings and an EPS increase of 38%. (On an adjusted basis, net income was $68.1 million, or $0.64 a share, vs. $63.2 million, or $0.56 a share.)

The independent broker-dealer said it had net revenue of $974.8 million for the first quarter of 2013, up 8% from a year ago.

The total number of advisors affiliated with LPL rose by about 3% year over year from 12,962 to 13,377. It also added 25 reps since Jan. 1. The broker-dealer's level of total advisory and brokerage assets jumped 11% to $394 billion, while the level of assets on its fee-based platforms grew close to 18% to $130.2 billion.

Net new advisory assets, excluding market movement, were $3 billion for the first quarter.

Assets under custody on LPL's independent RIA platform grew 72.3% to $46.7 billion as of March 31. These operations now include 199 RIA firms, compared with $27.1 billion and 152 RIA firms a year ago.

"This is a significant level of outperformance," said CFO Dan Arnold in an interview with AdvisorOne. "While the hybrid-RIA platform is growing from a smaller base [than the corporate RIA platform], it's proving very popular with RIAs run by advisors. It's another way for advisors to plug into LPL's models and should continue to outpace other areas' growth rates."

3^rd Place

AMERIPRISE FINANCIAL (AMP)

Ameriprise Financial first-quarter net income increased 37% to $336 million, up from $245 million a year ago. Its EPS was $1.58, representing a 49% increase from $1.05 a year earlier. Operating earnings, which exclude one-time items, increased to $1.59 a share from $1.45.

Net revenue on an operating basis grew roughly 4% to $2.6 billion, and rose 5.1% to $2.69 billion on a fully reported basis.

Assets under management and administration rose 5% to $708 billion, which the company said was a record.

Operating revenue in the advice and management business rose 7% to $1.02 billion from $954 million a year before. Pretax income for the unit jumped 39% to $131 million on an operating basis.

The number of Ameriprise reps, three-fourths of whom are independent, was 9,777 vs. 9,744 a year ago and 9,767 in the prior quarter. Retention of independent or franchisee reps was 94%, while retention of employee reps in the period was 91%.

Average fees and commissions per advisor stood at $104,000 for the quarter.

2nd Place

MORGAN STANLEY (MS)

Morgan Stanley (MS) said income from continuing operations applicable to Morgan Stanley was $1 billion, or $0.50 per share, compared with a loss of $79 million, or a loss of $0.05 per share, for the year-ago period.

While it's true that you can't calculate a proper percentage increase from a negative number, the dollar amount of Morgan Stanley's turnaround is substantial, so we have ranked the wirehouse No. 2.

Net sales were $8.2 billion for the first quarter ended March 31, compared with revenues of $6.9 billion a year ago. Excluding a debt-value adjustment of $317 million, net revenues for the current quarter were $8.5 billion compared with $8.9 billion a year ago and income from continuing operations applicable to Morgan Stanley was $1.2 billion, or $0.61 per share, compared with income of $1.4 billion, or $0.71 per share a year ago.

"Morgan Stanley demonstrated solid momentum across the firm this quarter, consistent with the strategic objectives we laid out at the beginning of the year," said Chairman and CEO James Gorman in a press release.

Morgan Stanley's Global Wealth Management Group reported pretax income from continuing operations of $597 million compared with $403 million in the first quarter of last year. The quarter's pretax margin was 17% versus 12% a year ago.

Net income for the first quarter of 2013 was $255 million, up 29% from the year-ago quarter.

In terms of the unit's advisor headcount, Morgan Stanley had 16,284 reps as of March 30 versus 16,352 as of Dec. 31 and 16,726 as of March 30, 2012—a 3% year-over-year decline (or a loss of 442 advisors).

BEST

1st Place

BANK OF AMERICA (BAC)

Bank of America said it had net income of $2.6 billion, or $0.20 per share, for the first quarter of 2013, compared with $653 million, or $0.03 per diluted share, in the first quarter of 2012. These strong results gave the firm a nearly 300% jump in earnings and a 566% increase in EPS.

Revenue, net of interest expense, rose 5% to $23.7 billion from $22.5 billion a year ago.

"Our strategy of connecting our customers to all we can do for them is working," said CEO Brian Moynihan, in a press release. "Solid increases in loan growth to small businesses and middle-market companies, four straight quarters of steady growth in mortgage originations, record earnings in wealth management, and another quarter near the top in investment banking fees show we are balanced, focused and moving forward."

Yearly advisor productivity at Merrill Lynch, as measured by fees and commissions, stood at $971,000 vs. $891,000 a year ago. The firm's number of financial advisors was 16,084 versus 16,692 a year ago and 16,411 in the prior quarter.

Global Wealth and Investment Management, which includes Merrill Lynch, saw its net income rise 31% from the first quarter of 2012 and 25% from the prior period to $720 million. Revenue for the unit was $4.42 billion, up from $4.15 billion a year ago and $4.19 billion in the earlier quarter.

"Revenue increased 7% from the year-ago quarter to $4.4 billion, driven by higher asset management fees related to higher market levels and long-term AUM flows, higher transactional revenue and higher net interest income," the company said in a statement. "The pretax margin was a record 26% for the first quarter of 2013, up from 21% in the year-ago quarter."

Total assets under management were $2.25 trillion, with about $1.83 billion held in Merrill Lynch client accounts.

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Check out more Top 10 lists and these related stories from AdvisorOne:

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(CORRECTION: Because of an error in calculating the rankings, Morgan Stanley was ranked No. 1 and Bank of America was ranked No. 2. It should be the reverse, with Bank of America ranked No. 1.)

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