How the wirehouses stack up: Profit margins narrow
August 10, 2016 4:10 PM
A bleak outlook, but lending remains strong
Another slow quarter hit the industry's largest brokerages. Revenues slipped again and profit margins continued to narrow. Growth across all the wealth management businesses remained stagnant, as clients were cautious about investing because of uncertainty in global markets. As a result, brokerage and transaction fees have taken a hit and may continue to experience significant headwinds.
See how the wirehouses are performing this quarter across a variety of metrics by clicking through our slideshow.
Read more: How the wirehouses stack up Q1
See how the wirehouses are performing this quarter across a variety of metrics by clicking through our slideshow.
Read more:
Brokerage transaction decline drives revenue fall
Among the wirehouses, Merrill Lynch performed the worst in terms of total revenues. The firm reported a 4% drop in wealth management noninterest income compared to a year earlier, citing lower market valuations and lower transactional revenues as its cause.
Wells Fargo and UBS also, associated their revenue fall to lower asset-based fees and lower transaction-based incomes.
Morgan Stanley's wealth management transactional revenues for the quarter decreased 8% year-over-year. The firm blamed lower investment banking, commission and fees for the segment. This, however, was partially offset by higher revenues in trading.
Read more:UBS Americas wealth pretax profits soar 18%
Wells Fargo and UBS also, associated their revenue fall to lower asset-based fees and lower transaction-based incomes.
Morgan Stanley's wealth management transactional revenues for the quarter decreased 8% year-over-year. The firm blamed lower investment banking, commission and fees for the segment. This, however, was partially offset by higher revenues in trading.
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A leaner business
Merrill Lynch's revenue growth might have performed the worst amongst its peers, but the wirehouse leads in cost-cutting efforts. Bank of America's Global Wealth and Investment Management (GWIM), a business unit that houses both Merrill and U.S. Trust, successfully reduced its noninterest expenses by more than 5%. The firm said the decline was primarily due to expiration of fully amortized adviser retention awards and lower revenue-related incentives. This however, was not enough to offset its revenue drop.
All four wirehouses are employing cost-cutting strategies. Expenses for Morgan Stanley, however, remained relatively unchanged due to an increase in non-compensation charges caused by higher litigation costs. These costs, however, were partially offset by a lower Federal Deposit Insurance Corp. assessment of deposits.
UBS, on the other hand, associated its reduced costs to lower provisions for litigation and regulatory matters. This reduction offset higher adjusted personnel expenses, which includes higher salary costs and compensation commitments.
Read more:BofA's cost cutting pays off for wealth management
All four wirehouses are employing cost-cutting strategies. Expenses for Morgan Stanley, however, remained relatively unchanged due to an increase in non-compensation charges caused by higher litigation costs. These costs, however, were partially offset by a lower Federal Deposit Insurance Corp. assessment of deposits.
UBS, on the other hand, associated its reduced costs to lower provisions for litigation and regulatory matters. This reduction offset higher adjusted personnel expenses, which includes higher salary costs and compensation commitments.
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Cost-cutting efforts
UBS and Bank of America's wealth unit are the only wirehouses that reported positive growth in profits.
UBS leads the pack with double digit growth in net profits. The firm associated its performance to cost-cutting efforts related to lower operating expenses.
BofA's wealth unit also said its positive performance was driven by a decrease in noninterest expenses.
Morgan Stanley remains the worst performer among its peers in terms of net profit. The firm blames stagnant growth in client assets for its disappointing profit figures.
Read more:Morgan Stanley wealth profits drop 8% as asset growth stalls
UBS leads the pack with double digit growth in net profits. The firm associated its performance to cost-cutting efforts related to lower operating expenses.
BofA's wealth unit also said its positive performance was driven by a decrease in noninterest expenses.
Morgan Stanley remains the worst performer among its peers in terms of net profit. The firm blames stagnant growth in client assets for its disappointing profit figures.
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The bread and butter continues to grow
Net interest income for all the wirehouses showed strong growth from a year earlier. Relying on loans and deposits, Morgan Stanley, UBS and Wells Fargo all recorded double digit increases in their lending businesses. Higher average deposits grew Morgan Stanley's loan and investment securities balances, while UBS attributed its growth to higher interest rates. UBS' average mortgage portfolio balance increased by 10% and its average securities-backed lending portfolio balance grew 6%.
Growth in loan balances and investment portfolios were credited for Wells Fargo's lending progress.
Read more:Wealth profit climbs 14% in 2Q at Wells, but falls 3% year-over-year
Growth in loan balances and investment portfolios were credited for Wells Fargo's lending progress.
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Client balances
Merrill Lynch is the only wirehouse among its peers to report shrinking client balances. The firm blames the shortfall on lower market levels.
Client balances at Morgan Stanley remained flat year-over-year, while both UBS and Wells Fargo saw approximately 2% growth.
Client balances at Morgan Stanley remained flat year-over-year, while both UBS and Wells Fargo saw approximately 2% growth.
Increase in recruits for some
Merrill's headcount increased due to graduates coming out of its training program and competitive recruiting.
Read more: How the wirehouses stack up Q1
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