12 Best & Worst Broker-Dealers: Q2 Earnings, 2016

By Janet Levaux

Slideshow August 19, 2016 at 09:03 PM

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Earnings by most companies in the S&P 500 Index were an average of about 2.5% lower in the second quarter of 2016 compared with a year ago. This represents the fourth drop in a row according to Thomson Reuters data and the fifth consecutive decline as calculated by FactSet.

However, there is some good news: S&P 500 profit margins have been near record highs, when the energy sector is excluded, says LPL Financial Chief Investment Officer Burt White. Plus, S&P 500 revenue is up 3% year over year, after energy-related results are removed.

In general, second-quarter earnings season "has been OK, but we were hoping for more," White says in a recent note to clients.

His team predicts a rebound in corporate earnings during the second half of 2016.

Read on to see how broker-dealers, an important part of the financial sector, did in Q2'16 in light of the S&P average:

WORST BROKER-DEALER

12^th Place

Ladenburg Thalmann (LTS)

Landenburg Thalmann, the parent company of Securities America, says its net loss more than doubled in the second quarter.

It had a net loss of $25.2 million, or -$0.14 per share, vs. a net loss of $9.6 million, or -$0.05 per share, in the year-ago quarter.

Total revenues for the financial services firm dropped 9% to $270 million from Q2'15. Commissions declined 11% to $127 million, while advisory fees weakened 6% to $112 million. Service-fee revenues also declined by $3 to $20.8 million.

Across the company, client assets stand at $128 billion at June 30 on par with year-ago assets; cash balances are roughly $4.4 billion. The financial group also says that in Q2'15, recurring revenue represented 75% of the independent brokerage and advisory services business.

(Ladenburg's operations include Securities America, Triad Advisors, Inc., Securities Service Network, Investacorp and KMS Financial Services, as well as Premier Trust, Ladenburg Thalmann Asset Management, insurance broker Highland Capital Brokerage and the investment bank Ladenburg Thalmann.)

11th Place

Stifel Financial (SF)

Stifel Financial had a 53% drop in net income in the second quarter, despite a year-over-year jump of over 8% in both total sales and wealth management revenue.

The financial services firm had profits of $9.8 million, or $0.13 per share, vs. $20.9 million, or $0.27 per share, a year ago – topping analysts' estimates. Revenues improved 9% year over year to $652.1 million.

Total revenues in wealth management was $386 million, up 12% from a year ago and 2% from the prior quarter – accounting for nearly 60% of the firm's total sales. Operating profits for the wealth unit were $105.1 million, up 12% and 3%, respectively from Q2'15 and Q1'15.

As of June 30, Stifel had 2,838 financial advisors with $237.5 million in client assets. On July 1, it completed the sale of its Sterne Agee independent-advisor business, which included 540 reps and $11.5 billion in client assets.

Thus, as of July 1, Stifel has 2,298 advisors and $226 billion in client assets – which represents an average of about $98.5 million in client assets per advisor. Of its total advisor force, roughly 2,170 are employee reps and 130 are independent advisors.

Ameriprise Financial Headquarters in Minneapolis.

10^th Place

Ameriprise Financial (AMP)

Ameriprise reported second-quarter 2016 net income of $335 million, or $1.97 per share. That is a 19% drop from $415 million in the second quarter of 2015.

Operating earnings also fell year over year by 13% to $379 million, or $2.23 per share, in the quarter; these results missed analysts' estimates.

The financial services company posted revenue of $2.9 billion in the second quarter, down 4% from a year ago.

Total assets under management and administration were $777 billion. Advice & Wealth Management advisor client assets increased to $462 billion, reflecting "continued strength in fee-based investment advisory net inflows, including $2.3 billion of net inflows in the quarter," according to the company.

On a trailing 12-month basis, operating net revenue (or fees and commissions) per advisor declined 1% to $507,000. This reflects lower average equity markets, high market volatility and lower transactional client activity, according to Ameriprise.

The total number of advisors grew to 9,758, which reflects strong retention and "another successful recruiting quarter," according to the company. In the quarter, 98 advisors moved their practices to Ameriprise.

9^th Place

Bank of America (BAC)

Bank of America reported quarterly earnings and revenue that beat analysts' expectations.

The company posted second-quarter net income of $4.23 billion, or $0.36, down 18% from $5.13 billion, or $0.45 a share a year earlier. Revenue for the quarter fell 7% to $20.4 billion, against the comparable year-ago figure of $22 billion.

Net interest income for the bank declined 12% in the year-ago period to $20.4 billion

"We believe we surely can [maintain a profit if interest rates do not rise]," CEO Brian Moynihan explained on a call with equity analysts. "If rates rise, we would expect [net interest income] to grow."

Most of the company's divisions produced higher sales and net income in Q2'16 vs. the year-ago period, with the exception of both the wealth management operations and activities not included in the bank's consumer banking, global banking and global markets operations.

Revenue from Merrill Lynch, U.S. Trust and the bank's consumer-banking unit was down 2.4% year over year to $4.46 billion, while net income improved 8% to $722 million. The unit's net interest income rose slightly to $1.43 billion from $1.35 billion last year.

The Merrill Lynch business, though, has a 4.2% drop in revenue to $3.63 billion in Q2'16. Plus, the level of advisor productivity (or average yearly fees and commissions per rep) declined to $984,000 from $1,050,000 a year ago.

Bank of America says it has some 16,664 financial advisors (up about 300 from a year ago and up about 50 from the prior quarter); 2,248 of these reps are with the consumer-banking unit. It also says it has a total of 18,159 wealth advisors, 2,229 of whom are with U.S. Trust.

Total client assets weakened to $2.42 trillion in Q2'16 vs. $2.52 trillion a year ago, but asset flows improved to $10.1 billion from $8.6 billion. In addition, the unit's pretax margin was 26% in the most-recent period, up from 23% a year ago.

8^th Place

Citigroup (C)

Citigroup said its company's net income of $4.0 billion, or $1.24 per share, was down 17% from $4.8 billion, of $1.51 per share in the year-earlier period. Revenue for the quarter came in at $17.55 billion, against the year-earlier figure of $19.158 billion.

These results topped estimates of about $1.10 a share for earnings and $17.47 billion in revenue.

Trading revenues was close to $4.7 billion, up 10% year over year. Fixed income revenues reached nearly $3.5 billion, a jump of 14%.

Equity trading revenues totaled about $790 million, up 21% from last year, and investment banking revenues were $1.2 billion, down 6% year over year.

"These results demonstrate our ability to generate solid earnings in a challenging and volatile environment, again highlighting the resilience of our institution. Nearly all of our net income came from our core businesses and we continued to reduce noncore assets in Citi Holdings," said CEO Michael Corbat, in a statement.

7^th Place

UBS Group (UBS)

UBS beat expectations with a second-quarter profit of about 1.03 billion Swiss francs ($1.06 billion), but that was down roughly 16% from the year-ago results.

The company's adjusted pretax profits, though, increased slightly from a year ago to about 1.7 billion Swiss francs in the second quarter of 2016.

The Wealth Management Americas unit, which includes more than 7,000 advisors, reported that its operating earnings declined 1% year over year to $1.9 billion, mainly due to lower client activity and lower mutual fund fees.

Adjusted pretax profits, however, increased to $281 million – up 15% from the prior quarter and 22% from a year ago. According to the company, the increase in adjusted profits reflects record net interest income and lower operating expenses.

"Wealth Management Americas delivered a strong performance, with profit before tax up more than 20% year on year, and our financial advisors maintained their status as the most productive among peers," said CEO Sergio Ermotti during a call with equity analysts.

Net new money inflows for the period were $2.4 billon despite seasonal tax-related outflows, compared with $0.7 billion of net outflows in the same quarter last year.

6^th Place

Morgan Stanley (MS)

Morgan Stanley reported a 14% drop year over year in second-quarter profits. Its results, which beat analysts' estimates, were $1.43 billion, or $0.75 per share, vs. $1.67 billion, or $0.85 per share, in the year-ago period.

Revenue declined 9% from Q2'15 to $8.9 billion. Results were weaker in its three main business units, which are Institutional Securities, Wealth Management and Investment Management.

Wealth Management had net revenue of $3.8 billion, down 2% from a year before. Its pretax earnings were $859 million, 3% weaker than in Q2'15, while its after-tax earnings were $516 million – a drop of 8% from the prior-year quarter.

As for the number of advisors, the group has some 15,909 reps vs. 15,888 in the prior period and 15,771 in the year-ago quarter. Total client loan balances were $69 billion as of June 30. Fee-based assets hit $820 billion in the most recent quarter, with asset flows of $12 billion

Morgan Stanley advisors have average annual fees and commissions of $959,000, which is lower than $987,000 in Q2'15 but higher than $923,000 in the first quarter.

Average assets per rep stand at $128 million, down slightly from $129 million a year ago but up from $126 million in Q1'16.

5^th Place

Raymond James (RJF)

Raymond James Financial said profits of $125.5 million, or $0.87 per share for the quarter ending June 30, were down 6% from the year-ago period, when it reported net income of $133.2 million, or $0.91 per share.

Adjusted earnings of $134 million, or $0.93 per share, topped analysts' expectations. In addition, revenue improved 3% to $1.39 billion, topping estimates.

Private Client Group assets held in fee-based accounts ended the quarter at $206.7 billion, representing more than 40% of total client assets in the segment and growth of 11% year over year. Total Private Client Group assets rose 7% from last year to $534.5 billion.

Pretax net income for the Private Client Group was $81.9 million, down 5% from last year. Its number of advisors grew to 6,834 from 6,507 a year ago and 6,765 as of March 31. Most advisors, 4,013, are independent reps, with the remaining 2,821 working as employees.

"We look forward to establishing the new Alex. Brown division of Raymond James upon closing the acquisition of the U.S. Private Client Services unit of Deutsche Bank Wealth Management, which is on track for September 2016," said CEO Paul Reilly, in a statement.

4^th Place

LPL Financial (LPLA)

LPL Financial said its net income fell 5% year over year to roughly $48 million, or $0.53 per share, in the second quarter of 2016, from $50 million, or $0.52 per share, a year earlier. Analysts had expected earnings to be $0.44 per share.

Revenue dropped about 7% year over year to $1.02 billion in the second quarter of 2016.

Total assets on the platform are $488 billion, up 2% sequentially. Net new assets in the second quarter were $2.8 billion.

The IBD says its affiliated-advisor count was 14,193, which is up 100 from the prior quarter.

According to Matt Audette, LPL's chief financial officer, the independent broker-dealer's business model is generating "strong earnings and cash flow."

Advisor commissions were $446 million, up 2% from the prior quarter. Average production per LPL advisor is $217,000, which is down 10% from a year ago but up 1% from the prior quarter.

Core general and administrative expenses were down $7 million sequentially to $168 million in the second quarter of 2016. Regulatory expenses for the second quarter of 2016 were $6 million, which was up $4 million sequentially.

3^rd Place

Wells Fargo (WFC)

Wells Fargo reported mixed second-quarter results: Net income weakened 2% to $5.6 billion, or $1.01 a share, from $5.7 billion, or $1.03, a year earlier. Meanwhile, revenue increased 2% to $22.16 billion. These results met analysts' estimates, according to Bloomberg.

The Wealth and Investment Management unit, which includes Wells Fargo Advisors, had a slight decrease in total revenue, which was $3.92 billion in the second quarter vs. $3.98 billion a year ago. The bank says this decline was related to lower asset-based fees and brokerage transaction revenue.

The unit's net income was $584 million, down from $586 million in Q2'15. Client assets in the retail-brokerage business, though, improved 2% to $1.5 trillion.

Well Fargo announced recently that Mary Mack, previously head of Wells Fargo Advisors, had been tapped to become head of retail banking on July 31. Her replacement is David Kowach.

2^nd Place

JPMorgan Chase (JPM)

JPMorgan posted a 1% drop in total profits vs. Q2'15, but sales rose 3%; the results beat equity analysts' expectations.

The bank said it had revenue of $25.3 billion and net income of $6.2 billion, or $1.55 a share, vs. a profit of $6.29 billion, or $1.54 a share, in the same period of 2015.

The firm, which has some 2,620 financial advisors, says its expenses fell to $13.64 billion from $14.5 billion a year before.

"JPMorgan Chase continued to perform well in all of our major businesses," said Chairman & CEO Jamie Dimon, in a statement. "Outside of energy, both wholesale and consumer credit quality remained very good."

The global wealth management operations reported total revenue of $1.5 billion, roughly flat with last year's results. The pretax margin for the group, though, grew to 28% from 25% a year ago.

Total assets in the private banking group (including assets under administration, or AUA, and assets under management, or AUM) at JPMorgan stand at $1.06 trillion, up from $1.04 trillion in the prior-year period, with $811 billion of the total coming from AUM.

Investment banking revenue weakened 15% to $1.5 billion in Q2'16, and Treasury-services revenue fell slightly to $892 million; securities-services sales were $907 million, down 9% from a year ago.

The firm's consumer and community banking unit saw its sales grow 4% from a year ago to $11.5 billion; mortgage banking revenue grew 5% year over year to $1.9 billion.

The bank's provision for credit losses expanded to $1.4 billion vs. $ 935 million a year ago, as it set aside higher reserves mainly on weakness in the energy sector.

The corporate and investment banking unit, increased sales 5% to $9.2 billion, driven by fixed income and equity trading-related sales. Fixed income revenue jumped 35%, while equity sales grew 2%. Commercial banking revenue improved 4% to $1.8 billion.

BEST BROKER-DEALER

1^st Place

Goldman Sachs (GS)

Goldman Sachs reported a 73% increase in second-quarter profits: Net income rose to $1.82 billion, or $3.72 a share, from $1.05 billion, or $1.98, a year earlier, which beat the analysts' estimates.

The firm left its quarterly dividend unchanged at $0.65 a share, the bank said in the statement.

Net revenue in the quarter dropped 13% to $7.93 billion, beating the $7.55 billion estimate. Expenses declined to $5.47 billion, while analysts predicted $5.34 billion, according to Bloomberg.

Fixed income trading revenue rose to $1.93 billion, while equities trading revenue weakened 11% to $1.75 billion.

Revenue from investment banking also sank by 11% to $1.79 billion, and investment management had an 18% drop to $1.35 billion. Revenue in the investing and lending division declined 38% percent to $1.11 billion.

The bank completed the purchase of General Electric Co.'s online bank in the second quarter, which brought it some $16 billion in deposits.

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