With investors returning slowly but surely to the markets, assets rose in the fourth quarter at three prominent financial firms that manage wealth.
Morgan Stanley
Morgan Stanley Global Wealth Management showed growth in its second full quarter with Smith Barney, as it boosted assets slightly and reported a higher profit before integration costs.
Morgan Stanley, which ended the joint venture with Citigroup Inc.'s Smith Barney retail brokerage on May 31, said its client assets rose 2%, to $1.6 trillion, in the fourth quarter compared with the third quarter. A year ago, before the merger, Morgan Stanley had client assets of $550 million. Morgan Stanley GWM posted a profit of $231 million, compared with $280 million in the third quarter. Excluding the integration costs, Morgan Stanley would have posted a 35% profit increase. In 2009 the firm had $501 million in deal-related and integration costs, and it expects $450 million this year.
GWM posted its second straight quarter of domestic asset outflows, as clients took out $4.7 billion from the firm. However, that was nearly half the amount ($8.8 billion) they took out in the third quarter.
During a conference call with analysts, Colm Kelleher, co-president of institutional securities, said the outflows "continue to reflect the lag effect of financial advisers that left Smith Barney prior to the joint venture closing." Kelleher added that the "magnitude of outflows declined substantially and we expect this trend to continue."
State Street
Aided by a surge in assets under management, State Street Corp. reported strong profit growth, but its executives remained conservative in their outlook for 2011.
Edward J. Resch, the company's chief financial officer, said in a conference call that it does not expect "much" growth in its balance sheet this year.
"Our view is to be cautious," he said.
Joseph L. Hooley, State Street's chief operating officer, who will become its chief executive, March 1, said it will "redouble its efforts" to reduce risk. It is developing "internal controls," including risk management, audit, legal and compliance, to avoid a repeat of some of the problems that befell the company and the industry because of investments in subprime mortgages, Hooley said.
"We all learned something in the past couple of years," he said. "We are in a transition where risk management is becoming a broader part of the culture as we look at opportunities going forward. There is much more attention to managing risk in a prudent way. That doesn't mean we are not going to take risks, but we are going to take a harder look at it."
State Street posted a profit of $498 million, or $1 a share, up from $234 million, or 54 cents a share, a year earlier. Revenue declined 13%, to $2.31 billion. Assets under management increased 32%, to $1.91 billion from a year earlier and 10% from the previous quarter.
Hooley said growth remains robust in its exchange-traded fund business. State Street trails only BlackRock Inc., which bought Barclays' ETF business last year, among providers of ETFs nationally. Global ETF assets hit the $1 trillion mark at the end of December, a milestone long expected by industry insiders. Hooley said that as confidence returns to actively managed investments this year, he expects assets to increase on that side of the business.
Northern Trust
Northern Trust Corp.'s profit fell a less-than-projected 41% as the company reported "significant" new business from personal and institutional clients for the year.
Northern Trust said trust and investment fees accounted for half of fourth-quarter revenue, rising 12%, to $548.6 million. Fee-related income overall rose 12%, to $706.2 million, accounting for 74% of total revenue. The company reported a profit of $200.3 million, or 82 cents a share, down from $342.3 million, or $1.47 a share, a year earlier. Revenue fell 17%, to $950.2 million.
The company said it had solid growth in client assets, with assets under custody rising 22% and assets under management rising 16%, excluding securities lending collateral. Operating costs rose 12% and credit-loss provisions fell one-third, to $40 million.
