The firm’s share of after-tax earnings for BlackRock are included in the GIM portion of GWM revenues for both the fourth quarter of last year and the first quarter of this year, but not the first quarter of 2006 when Asset Management activities were reported in the former MLIM segment.
- GWM generated solid revenue growth and strong pretax profits, driven by revenue growth in both GPC and GIM.
- Net revenues of $3.4 billion were up 16% year on year and 4% sequentially.
- Pretax profits of $842 million were up 31% and 11% respectively.
- The pretax margin of 24.7% was 24.7% higher than both prior periods.
GPC net revenues were $3.1 billion, up over 2% sequentially and 11% from the prior year quarter.
These were GPC second-highest quarterly net revenues ever, short of the record set in the first quarter of 2000. Sequentially, the overall revenue increase was driven by every major category. Transaction and origination revenues rose amidst a meaningful activity pickup early in the quarter. Net interest in fee-based revenues reached all-time highs. Year-over-year, the overall GPC revenue increase also came across every revenue line with fee-based revenues contributing the most. Transaction and origination revenues were driven by higher new issue origination activity in closed end funds, and net interest increased meaningfully.
GPC continues to make progress on key growth initiatives, including private banking where, the First Republic acquisition will enhance ability to grow in this attractive sector. First Republic will be able to expand on a more rapid basis as part Merrill Lynch than as a standalone company.
Expanding non-U.S. operations remains a priority.
- GPC grew non-U.S. revenues at a faster sequential pace than the U.S. business and is implementing a new business model focusing on ultra-high net worth clients.
- The company continues to invest in technology.
- In an increasingly competitive industry, the level and consistency of revenues and earnings enables to afford the substantial investments in technology required to empower FAs to deliver best-in-class client service, products and advice.
GIM reported revenues of $261 million, up 24% sequentially and 151% from last year’s first quarter.
Sequentially, growth was driven by an increased contribution from investments in BlackRock and other investment management companies. Compared to the first quarter of last year, most of the increase reflects the inclusion of BlackRock in the current quarter but not in the earlier period. However, other areas of GIM also generated revenue growth.
For GWM as a whole, first quarter asset flows into private client accounts were strong.
Net inflows into products that generate annuitized revenues were $16 billion. Total net new money into the firm was also $16 billion, bringing total client assets to a new record level.
The GWM strategy remains consistent: investing in an industry-leading global platform that attracts superior professionals and enables them to act as central partners to their clients, providing best-in-class service, products and advice, and positioning the business for further growth.
The ratio of compensation expenses to net revenues was 49.6%, about 50 basis points lower than in the first quarter of 2006.
The decline in this ratio reflects operating leverage to increased revenues, driven by continued bottoms-up discipline around compensation, even as the company continues to hire aggressively around the world to enact growth plans. As usual, the quarterly progression of compensation ratio will depend on how the environment evolves, both in terms of revenues and competitive trends in compensation.
Non-compensation costs totaled $1.9 billion, up 15% from last year’s first quarter, consistent with the growth of business and down 3% sequentially.
The ratio of non-compensation expenses to net revenues reached a record low of 19%, down 1.4 points from the year-ago period as the company was able to deliver operating leverage despite the growth in activity levels and the inclusion of First Franklin, an expense intensive business.
Effective tax rate was 30.3%, up 3 points from the full year 2006.
At this point, the company expects this rate to continue to increase as earnings grow. Both the rate for individual quarters and the full year rate can be impacted by various factors, including changes in tax laws, settlements and business mix.
The company continues to execute aggressively on the share buyback front, repurchasing more than $22 million shares, $2 billion worth of common stock.
Plan is to remain active in repurchasing stock, although as the company seeks approval from First Republic’s shareholders for that acquisition, it will be required to withdraw from the market for a period of time. That may impact the absolute amount the company is able to buyback in the coming quarter.
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