Many broker-dealers, especially those that are part of larger banks, reported the impact of the tax overhaul in their fourth-quarter 2017 earnings.
As a result, many financial-services companies posted "kitchen sink" results, research analysts with Keefe, Bruyette & Woods, said (KBW is owned by Stifel Financial).
"Banks recorded sizable one-time gains and losses owing to deferred tax assets and liabilities, and [they] accelerated other expenses to utilize 2017's higher tax shield on spending," said Melissa Roberts and Pell Bermingham in a KBW report on Feb. 6.
"Despite all this 'noise,' Q4'17 results were mostly in line to modestly better than forecasts," the analysts explained. "Operating earnings-per-share growth along with operating income and net-interest-margin results were stronger than our forcest. Credit quality overall remains solid."
The largest institutions reported significant adjustments due to the Tax Cuts and Jobs Act (TCJA), which Congress passed on Dec. 22.
KBW analyst says that earnings estimates for 2018 have been "mostly cut" and are a "mixed bag" for 2019.
Read on for more details on the 12 best and worst broker-dealers of Q4 2017, based on actual (not adjusted) results — including one-time impacts of the TCJA.
WORST BROKER-DEALER
Citigroup (C)
12th Place
Citigroup said it had a fourth-quarter net loss of $18.3 billion, or $7.15 per diluted share, vs. a gain of $3.2 billion, or $1.14 per share, a year ago. Revenue, though, improved about 1% year over year to $17.3 billion in the period.
The net loss included an estimated one-time, noncash charge of $22 billion, or $8.43 per share, tied to the Tax Cuts and Jobs Act.
For the full year 2017, Citigroup reported a net loss of $6.2 billion on revenues of $71.4 billion, compared with net income of $14.9 billion on revenues of $69.9 billion for the full year 2016. Excluding the impact of tax reform, Citigroup's net income was $15.8 billion, up 6% from the prior year.
The company says its share buyback and dividend plans should continue.
"Tax reform does not change our capital return goals as we remain committed to returning at least $60 billion of capital in the current and next two [Comprehensive Capital Analysis and Review] cycles, subject to regulatory approval," CEO Michael Corbat said in a press release.
Goldman Sachs (GS)
11th Place
Goldman Sachs reported a fourth-quarter net loss of $2.14 billion, or -$5.51 billion per share, vs. a gain of $2.15 billion, or $5.08 per share, a year ago. The company said the results factored in a tax hit related to moving overseas profits back to the U.S.
Quarterly revenue fell 4% to $7.8 billion, but full-year revenue grew 5% to $32.1 billion.
"Last year, we delivered higher revenue and stronger pretax margins despite a challenging environment for our market-making business," said Chairman and CEO Lloyd Blankfein, in a statement.
Fourth-quarter Investment Banking revenues were $2.14 billion, 44% higher than a year ago. In the Financial Advisory segment, sales grew 9% to $772 million.
Investment Management revenues grew 4% to $1.66 billion in the quarter, mainly due to higher management and other fees, as well as higher assets under supervision.
In a news release, Goldman said the trading environment was a challenging one, "characterized by low levels of volatility and low client activity.
"With the global economy poised to accelerate, new U.S. tax legislation providing tailwinds and a leading franchise across our businesses, we are well positioned to serve our clients and make significant progress on the growth plan we outlined in September," Blankfein added.
Goldman's investment banking unit had $2.14 billion in net revenue for the quarter and $7.37 billion for the year, its second best ever.
Investment management produced sales of $1.66 billion for the quarter, a 4% gain from the year-ago period, with a full-year total of $6.22 billion.
UBS Group
10th Place
UBS Group AG said it had a net loss of about $2.39 billion (2.22 billion Swiss francs), or -$0.65 a share, in Q4 vs. a gain of $685 million (636 million Swiss francs), or $0.18 per share, a year earlier. Its sales, though, grew slightly to $7.66 billion from $7.60 billion. The loss, the bank said, was tied to the recent U.S. tax reform.
UBS' Wealth Management Americas improved net income before taxes 9% year over year and 11% consecutively in the quarter on an adjusted basis to $390 million. Its full-year profit was almost $1.4 billion.
In the Americas, UBS' advisor headcount was 6,822 at the end of the 2017, down 1% from the earlier quarter's 6,861 and off 3% from 7,015 in the year-ago period. Loans to recruited advisors fell 14% to $2.6 billion in the quarter versus $3.0 billion a year earlier.
These advisors had average yearly fees and commissions of $1.23 million and $180 million in average client assets.
Net outflows were $500 million in the final quarter of 2017. When interest and dividend income are included, net inflows totaled $9.4 billion. Client assets expanded 11% year over year to nearly $1.3 trillion.
Wealth management outside the Americas — which includes 3,794 financial advisors — had 14.2 billion Swiss francs in net new assets in the fourth quarter. Total client assets grew 16% year over year to 1.34 trillion Swiss francs, or roughly $1.4 trillion.
On Feb. 1, UBS merged its FAs in and beyond the Americas, creating a Global Wealth Management unit with about 10,600 FAs and close to $2.7 trillion in client assets worldwide.
(Related: UBS to Merge Wealth Units)
Stifel Financial (SF)
9th Place
In the quarter, Stifel had a net loss of $4.3 million, or -$0.06 per diluted share, vs. a gain of $24.5 million, or $0.31 per share, in the year-ago period.
Revenue, though, improved 12% to $804.1 million in the period ending Dec. 31.
"We are pleased to announce that 2017 was our 22nd consecutive year of record [full-year] net revenue of $2.9 billion that increased 14% from 2016," said Chairman & CEO Ronald J. Kruszewski, in a statement.
In the fourth quarter, wealth management brokerage revenues were $163.4 million, up 2.1% from the year-ago quarter. For the full year, though, these results dropped 1.4% to $661.3 million.
The broader wealth management unit had a 16% quarterly jump in revenues to $474 million. For 2017, its results improved 17% to $1.82 billion.
Its financial advisor headcount is 2,244 vs. 2,252 in Q3'17 and 2,280 in Q4'16 — with total client assets of $273 billion.
"Wealth management benefited from the further expansion of our bank balance sheet and growth in our fee-based assets," he added.
Morgan Stanley (MS)
8th Place
Morgan Stanley's net income fell 59% to $686 million, or $0.29 per share, from $1.67 billion, or $0.81 per share, a year earlier, due to tax-related items.
It has 15,712 advisors, down 51 from the prior year and 47 from the prior quarter. These advisors had average 12-month trailing production of $1.12 million as of Dec. 31.
Morgan Stanley Wealth Management had sales of $4.4 billion in the fourth quarter, up 10% from a year ago, and net income of $404 million, a decline of 24%. Its pretax margin was 26% in the quarter.
For the full year 2017, Morgan Stanley's advisors had $16.8 billion of revenue.
Morgan Stanley, which reports only its fee-based flows, said these incoming assets were $20.9 billion in the quarter, with loans totaling $80 billion as of Dec. 31.
The firm's advisors had about $2.37 trillion in client assets — up 13% from a year earlier.
Ameriprise Financial
7th Place
Ameriprise Financial had fourth-quarter 2017 net income of $181 million, or $1.18 per share, compared with $400 million, or $2.46 per share, in the year-ago quarter, representing a 55% drop.
Results included a $320 million, or $2.08 per diluted share, impact from the enactment of the Tax Cuts and Jobs Act.
Revenues for the period were $3.2 billion, up slightly from $3.1 billion in Q4'16.
