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
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.
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 (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.
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.
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.
