Displaying items by tag: earnings

There have been constant rumors swirling that UBS intends to sell its US wealth management unit. In part, it’s due to the bank’s North American wealth management unit delivering lower returns than its peers and UBS’ wealth management units in other geographies. 

Another factor is that European regulators are reportedly looking to impose increased capital requirements for banks with foreign subsidiaries. The unit has also been underperforming, with profit declining by 31% in Q1 and its cost-to-income ratio more than 20% above UBS’ other geographies. Advisor headcount also declined from 6,147 to 6,079. 

During UBS’ Q1 earnings report, CEO Sergio Ermotti dismissed reports that a sale was on the horizon despite these challenges. He sees a presence in North American wealth management as integral to UBS’ ambitions of being a global bank, adding that “shrinking back to greatness is not a strategy.”

Instead, UBS plans to keep investing in its North American wealth management business, identifying it as a ‘key… growth market’. It believes that over the next 3 years, UBS can shrink the profitability gap with its competitors. Part of its growth strategy is to more aggressively refer investment banking customers to wealth management. 

Finsum: Despite middling results from its North American wealth management unit, UBS dismissed speculation that the unit could be sold. Instead, it plans to invest in the unit and hopes to narrow the profitability gap with peers over the next 3 years.

Blackstone is the largest alternative asset manager, with over $1 trillion in assets as of the end of last year. According to FactSet, Blackstone has a 19.7% revenue share of the diverse alternative investment market.

In total, it has stakes in 230 companies and around 12,500 real estate assets. While high interest rates and a significant slowing in IPOs and dealmaking have hurt many financial stocks, alternative asset managers are an exception, with a 45% gain in 2023, outpacing the S&P 500’s 24% increase. Blackstone climbed nearly 70%.

Blackstone is bullish in 2024 as it sees a bottom in real estate and an improved environment due to the Fed cutting rates. However, it doesn’t see a V-shaped recovery. Instead, the firm anticipates a longer period of bottoming out when there could be more dislocations. 

Weakness in real estate is reflected in Blackstone’s results, as 2023 earnings were down 23% from the previous year. Real estate revenue was down 51%. Its two major real estate funds were down 6% and 4% for the year, respectively. As a result, the firm only spent $15 billion on real estate investments, down from $47 billion the previous year. 

Finsum: Blackstone is the leading alternative investment manager in the world. Its stock was up nearly 70% in 2023, despite a double-digit drop in earnings. The company is bullish in 2024 due to the anticipation of a bottom in real estate and improved conditions with lower rates.  

2024 has been underwhelming so far for REITs, as evidenced by the iShares US Real Estate ETF’s YTD 4.5% decline, while the S&P 500 is up 9% YTD. Two major reasons for this underperformance are continued struggles for the office segment and less clarity about the outlook for monetary policy, following a series of stronger than expected labor market and inflation data.

However, the intermediate-term outlook for the sector remains favorable due to attractive yields and earnings growth despite a challenging, near-term environment. Further, most segments are in good shape. According to Steve Brown, the senior portfolio manager at American Century Investments, “The REIT industry is very diversified among different sectors like data centers, towers, and industrial, and office is only about 4 or 5 percent of the index. So while office has issues, many other property sectors have pricing power and can raise rents greater than inflation.” 

He also favors public REITs over private REITs, as public REITs are cheaper while offering more liquidity. He notes that many private REITs are still trading at or just above net asset value (NAV), while public REITs are trading at an average 20% discount to NAV. Overall, he sees a much more benign environment in 2024, especially once the Fed starts cutting rates.  

Finsum: REITs have had a rocky start to the year. However, the fundamentals for the sector continue to improve, while many of its challenges are already reflected in depressed valuations.

Last week, the Nasdaq made an all-time high pushing past its previous highs from January 2022. This was before the Federal Reserve embarked on an aggressive campaign of rate hikes to curb inflation. In one respect, the tech-heavy Nasdaq is playing catch-up with the S&P 500 which has been setting new record highs over the last couple of months and is now more than 10% above its January 2022 levels.

While a major component of these advances is due to the strength in the 7 largest technology stocks and frenzy around the AI boom, it’s worth noting that the equal-weighted indices for the Nasdaq and S&P 500 also made new, all-time highs as well. It’s an indication that the bull market is expanding in terms of participation. It also leads to the conclusion that the market is strong from a bottom-up perspective as well.

Another way to assess the market’s strength from a bottom-up perspective is corporate earnings. With Q4 earnings season nearly in the books, it’s clear that earnings remain robust despite a host of macro headwinds. So far, 97% of S&P 500 companies have reported. 73% topped earnings expectations, while 64% exceeded revenue estimates. Overall, earnings were up 4% compared to last year, marking the second consecutive quarter of earnings growth, validating the bullishness of investors. 

Finsum: The stock market is making all-time highs consistently in 2024. The strength goes beyond the ascendant tech sector as equal-weighted indices are hitting new highs, while corporate earnings continue to grow despite an array of headwinds. 

Bank of America CEO Brian Moynihan is looking to increase the profitability of the bank’s wealth management unit. He wants to achieve this by increasing scale, hiring more advisors, promoting more cross-selling of products, and investing in technology. 

In Q4, Bank of America had a net gain of 175 brokers with most of the growth coming from graduates of its training program. It ended the year with 18,916 advisors across all units which was a 2% decline from the end of 2023. The bank has also sought to stem the tide of defections over the past few years by upping compensation to match its competitors.

Moynihan wants to expand headcount and increase the bank’s presence in underserved markets. A key aspect of this is its revamped broker training which was integrated with Merril in 2021 and has increased retention rates of new advisors. 

Another element of the growth plan is to increase use of Bank of America financial products across its ecosystem. This means getting wealth management clients to use Bank of America financial products such as home loans or bank accounts, or private banking customers should be using Merrill for wealth management rather than an outside firm. He sees this as an opportunity to increase sales with minimal expense compared to other channels. 

Finsum: Bank of America CEO Brian Moynihan was positive on the wealth management unit’s performance. He sees future growth coming from adding advisors, investing in technology, and increasing cross-selling of products.