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A Mixed Second Quarter for Merrill, Schwab

Second-quarter earnings results posted today by Merrill Lynch and Charles Schwab Corp. offered a mixed picture to financial advisors hoping for a stronger recovery.

Second-quarter earnings results posted today by Merrill Lynch and Charles Schwab Corp. offered a mixed picture to financial advisors hoping for a stronger recovery. Both businesses showed signs of sequential quarterly slowdowns in some measures of asset gathering, although Merrill reported higher profits and earnings year over year and Schwab saw its stock climb on stronger fee revenue.

Merrill Lynch’s results were included in the quarterly report posted by parent Bank of America in Charlotte, N.C. Merrill had net income of $316 million, up 3.9 percent from the comparable quarter a year earlier, on total revenue of $3.24 billion, up 7.8 percent from a year earlier. Advisor productivity rose to $853,000, up 3.6 percent year over year and 4.2 percent sequentially; the number of advisors was up just under 1 percent, to 15,142. Shares in Bank of America tumbled after the company posted profits of $3.1 billion, down 3.1 percent from a year earlier; management said new financial overhaul rules on debit-card fees could cut revenue more than the market expected.

Reflecting investor nervousness over the May 6 “flash crash” and indications of a slowing national economic recovery, net new households with total accounts valued at $250,000 and above at Merrill fell from 6,300 in the first quarter to 3,700 in the second, although that’s better than a net decline of 5,600 households a year earlier. Total active accounts at Merrill were down just under 2 percent, to 3.1 million. “We had a very volatile second quarter in the equities market, and we had a lot of fear with what was going on in Europe, and that infected the United States,” Morningstar analyst Jaime Peters says. BofA spokesman Jerome F. Dubrowski said the household account figure is lower in part because of falling markets.

The sharp drop-off in AUM at BofA’s Global Wealth and Investment Management unit, which includes Merrill, was the result of the company’s sale of Columbia Management’s long-term asset management business to Ameriprise. AUM in the unit last quarter was $603.3 billion, down from $750.7 billion sequentially. Dubrowski said the bank believes its merger with Merrill is working; adjusted for one-time items, last quarter’s revenue of $4.3 billion in Global Wealth is a record since the sale.

BofA said its efforts to cross-sell with Merrill continued to bear fruit. Referrals between the company’s commercial and corporate businesses and its Global Wealth and Investment Management unit grew 24 percent from the first quarter. Merrill Edge, the company’s recently launched discount platform that aims to help mass affluent clients manage their investments and other finances, produced 7,000 contacts. “What the bank hasn’t done yet and is still figuring out is how to identify, among their consumer clients, who among those have $250,000 and up in investable assets and try to get those clients to bring over their assets that probably have at other firms,” says Sophie Schmitt, a senior analyst at Aite Group. About 7 million BofA clients have not yet brought over their assets to the wealth management side of the business, she said.

San Francisco-based Schwab reported net income of $205 million last quarter on revenues of $1.08 billion; both numbers were flat from a year earlier. However, asset management and administration fees rose sequentially for the first time in eight quarters, to $437 million, although it was down 10 percent year over year. The picture for net new assets among Schwab’s different platforms was mixed. Schwab Advisor Services, which caters to the RIA channel, saw new assets rise 32 percent to $10.2 billion from a year earlier, although it dropped 31 percent sequentially. Schwab’s retail Investor Services platform saw net new assets of $1.3 billion, down 65 percent year over year and 70 percent sequentially. The company’s earnings report did not provide data on the number of new advisors that have joined Schwab.

“The economy is starting to find its footing, and short term interest rates have either stabilize or improved,” Chairman Charles Schwab said in a statement. “In addition, despite ongoing equity market volatility, valuations continue to reflect a recovery from the lows of the financial crisis.”


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