Wells Fargo, Schwab Beat Estimates: Q2 Earnings

Earnings season for the financial sector is well underway with about a half dozen firms already reporting results that all beat expectations, including Wells Fargo, Charles Schwab and JPMorgan.

Bank of America Merrill Lynch will release its second-quarter figures on Wednesday, while Morgan Stanley will do so on Thursday.

"Quarterly earnings almost always beat quarter-end consensus estimates [and] this quarter will likely be the 41st in a row to do that — so we expect a slight year-over-year that would continue the stretch of consecutive quarterly earnings gains since the 2016 earnings recession," said LPL Financial Chief Investment Strategist John Lynch, in a research note Tuesday. "Nearly 60 companies will report this week (July 15–19)."

Next week, TD Ameritrade (Monday), Ameriprise Financial (Tuesday), LPL (Wednesday) and Raymond James (Thursday) will share their financial reports for the period ending June 30.

Here's what some of the largest broker-dealers have reported so far this week:

Wells Fargo

The bank — still operating without a permanent CEO — had a 19% jump in net income to $6.2 billion, benefiting from a gain on the sale of its Pick-a-Pay loans. Earnings improved about 33% to $1.30 per share, but revenue was flat at $21.6 billion.

As for the wealth operations, total assets under management declined 1% to $1.9 trillion. The unit had a 35% jump in net income, though, to $602 million.

The firm lost 3% of its advisors vs. Q2'18. It now has 13,799 — down 29 from the prior quarter, 427 from last year and 1,287 from Sept. 30, 2016 (when news of its fake-accounts scandal spread).

"Advisor headcount at [Wells Fargo Advisors] stabilized as we had our best recruiting quarter since 2016 in terms of both the number of hires and the associated production," according to a statement.

Fees and commissions, or productivity, of veteran recruits from rivals rose 84% year to date, the group says, vs. the first half of 2018. "Advisor attrition has dropped, our pipelines are robust, and the recruiting activity levels of our local managers are very high," it added.

As for the lower number of reps, WFA points to the aging workforce and ongoing retirement as an important factor.

Charles Schwab

Schwab — which is reportedly in talks to buy USAA's wealth and investment operations — had an 8% jump in its net income to $937 million, or $0.66 a share, vs. $866 million, or $0.60 cents, in Q2'18. Revenue also grew 8% to $2.68 billion.

"Clients opened nearly 400,000 new brokerage accounts during the second quarter … helping push active accounts to the 12 million mark by quarter-end, up 7% year-over-year," said CEO Walt Bettinger in a statement.

"This includes 3.5 million accounts under the guidance of the 7,500+ independent advisors who custody with us; those accounts are up 8% as advisors successfully build their businesses with our assistance," Bettinger added.

Net new assets were $37.2 billion during the second quarter of 2019; those in Advisor Service totaled $19.3 billion, a drop of 36% from NNA in Q2'18.

Average assets in Schwab's advice solutions programs were $312 billion on June 30 vs. $288 billion a year ago. This includes Schwab's new subscription-based digital advisory service, which drew $1 billion in new assets under management since it was introduced about three months ago.

Total client assets grew 9% from last year to $3.7 trillion — $1.76 trillion of which are part of the Advisor Services unit.

JPMorgan

Revenue rose 4% year over year to $28.8 billion. Net income jumped 16% to $9.65 billion, and earnings per share grew 23%. The firm's Asset and Wealth Management unit had sales of $3.6 billion, with assets up 7% from last year at $2.2 trillion; the business has 2,735 wealth management advisors vs. 2,644 a year ago.

Goldman Sachs

The firm saw its year-over-year revenue weaken 2% to $9.46 billion. Net income, though, fell 6% to $2.42 billion, with earnings off 3% at $5.81.

Investment banking sales were down 9% to $1.86 billion, including underwriting work — which was off last year's results by 12%. Fixed income, currency and commodities trading were down 13% to about $1.5 billion. Investment management declined 14% to $1.6 billion.

— Check out Best & Worst BDs for Advisors: J.D. Power — 2019 on ThinkAdvisor.