BlackRock, State Street Corp. And AllianceBernstein Holding LP Cutting Jobs In Anticipation of Recession (#GotBitcoin?)
BlackRock Inc. is cutting about 500 jobs as the world’s largest money manager looks to simplify parts of its business and focus more on areas such as technology, retirement and alternative investments. BlackRock, State Street Corp. And AllianceBernstein Holding LP Cutting Jobs In Anticipation of Recession
Money manager will shed about 3% of its staff in latest industry cost-reduction effort.
The cuts make up roughly 3% of BlackRock’s more than 14,000 workforce and will take place over the coming weeks. BlackRock began laying off staffers Thursday, said a person familiar with the matter. The cuts will happen broadly across the firm; it isn’t clear which areas will be most affected.
The firm’s head count will still be 4% higher than a year ago following the departures.
BlackRock is reinvesting the money saved to bolster areas Chief Executive Laurence Fink has slated as priorities such as technology offerings, illiquid alternatives, retirement products and its fast-growing exchange-traded funds business.
The moves by the $6.4 trillion firm reflect pressures on asset managers to seek new ways to expand and insulate themselves from a downturn. Like many asset managers, BlackRock has wrestled in the past year with slowing investor inflows, heightened price competition and slumping share prices.
“Market uncertainty is growing, investor preferences are evolving, and the ecosystem in which we operate is becoming increasingly complex,” according to an internal memo released Thursday. “The changes we are making now will help us continue to invest in our most important strategic growth opportunities for the future.”
The last time the New York firm cut its workforce at this scale was in 2016, when it also culled 3% of its workforce. What is different now is that fee pressures across the industry have become more acute, and increased volatility in recent months has made many investors more cautious about how they allocate money.
New money flowing to U.S. asset-management products in the first 11 months of 2018 fell more steeply than in any similar period since 2008, according to estimates from research firm Morningstar Inc. The slowdown in demand poses the most challenges to smaller firms.
Last year, AllianceBernstein Holding LP began a multiyear plan to move about 1,000 jobs to Nashville, where it established its new headquarters to lower expenses. The firm isn’t eliminating positions, though some employees will opt not to relocate from New York, a spokeswoman said.
State Street Corp. is trimming senior-management jobs as it streamlines costs, the custody bank and asset management firm’s president, Ron O’Hanley, said in a recent presentation. “We think that we can structurally compress the senior management kind of ranks, if you will, by 15%,” said Mr. O’Hanley, who was promoted to chief executive this month.
The cuts will affect about 100 managers, including senior and executive vice presidents, a person familiar with the matter said.
State Street Is Cutting 1,500 Jobs
Custody bank aims to trim some $350 million in expenses this year.
State Street Corp. said Friday the custody bank will shed about 1,500 employees in a new cost-cutting plan designed to help weather tough market conditions.
The bank, which provides bookkeeping and other back-office services to nearly 90% of the world’s biggest asset managers, will eliminate positions in higher-cost offices such as Boston, New York and London, as it automates parts of its operations. The cuts include the 100 or so senior management jobs State Street said last month it would cut.
“While we have made progress on our technology transformation, much remains to be done and we are not satisfied with our recent performance,” said State Street Chief Executive Ron O’Hanley, who took the reins Jan. 1. “Structural costs are still too high and our automation efforts have not moved fast enough.”
The cost-cutting plans, which aim to shed some $350 million in expenses this year, come at a fragile time for money managers and the custody banks that serve them.
A weak stock market in 2018 and uncertainty about the global economy has led many investors to pull assets from managers or at least hold off in committing new money. Low-cost index funds continue to outdraw stock- and bond-picking strategies, adding to the pressure on managers’ profit margins.
State Street took a $223 million charge in the fourth quarter to account for the costs associated with the expense program.
The bank said net income rose 19% to $398 million, or $1.04 a share, from $334 million, or 89 cents, a year earlier. Excluding charge and other items, State Street earned $1.68 a share in the most-recent period. On that basis, analysts had expected a $1.70 profit.
Revenue rose 4.9% to $2.99 billion, slightly above analysts’ average estimate.
State Street finished the year with $31.6 trillion in assets under custody, down from $34 trillion at the end of the third quarter. The firm had $2.51 trillion in assets under management, an 11% drop from September.
BlackRock — with business lines from technology to exchange-traded funds — is expected to keep its margins at above 40% in the near term, Wall Street analysts predict.
The money management behemoth has risen from a small offshoot of private-equity firm Blackstone Group in 1988 to a sprawling giant that touches nearly all parts of the financial ecosystem today. Some current and former employees have attributed its rise to a unique culture where business lines are reviewed at least once a year and intensive strategy meetings held a number of times each year. Leaders are regularly rotated around the firm to be tested in different roles.
Recently conversations around how the firm can reposition itself for the future have intensified.
In the memo, BlackRock said the head count cuts are among a number of changes it is making this year. It is also planning to push more aggressively into markets overseas where it has had a smaller presence.
“We’ll be making some additional changes to simplify and enhance our organization in the weeks ahead,” BlackRock said in the memo. “The uncertainty around us makes it more important than ever that we stay ahead of changes in the market and focus on delivering for our clients.”
Over the past year BlackRock finance executives had scrutinized the expense of flying and hosting staff for internal events more than before, said people familiar with the matter. Some managers were rushing to fill open positions quickly in 2018 because they feared the jobs would disappear if they didn’t lock in hires by year-end.
BlackRock’s Assets Fall Sharply
The roughly $468 billion drop in the fourth quarter was the largest such decline since September 2011.
BlackRock Inc.’s assets fell below the $6 trillion mark in the fourth quarter, a sign of how volatile markets and investor jitters pose new challenges for the world’s largest money manager.
The roughly $468 billion drop during the final three months of 2018 was the largest such decline between quarters since September 2011. BlackRock ended 2018 with $5.98 trillion in assets under management, according to its latest quarterly report.
The reversal reinforces the pressures facing BlackRock and the rest of the asset-management industry as managers search for new ways to grow.
Clients aren’t committing as much new money to investment products, and managers are competing to push prices lower. Choppy markets add another layer of uncertainty since that reduces the value of managers’ existing assets.
BlackRock became the world’s largest money manager over the last decade thanks to rising markets and a shift to cheaper products that mimic market indexes, crossing the $6 trillion mark in late 2017. The firm has a sprawling line of different businesses that could help insulate it in a tougher market environment than smaller peers. The firm’s stock was up more than 4% Wednesday morning.
But its reach across markets also exposes it to shifts in investor behavior because a significant amount of BlackRock’s revenue comes from fees tied to the assets it manages.
A market rout in the fourth quarter helped push revenues down by about 9% to $3.43 billion. Revenue from investment-advisory, administration fees and securities lending fell by 4% in fourth quarter compared with the previous year.
Performance fees—the money the firm gets for outperforming markets–fell sharply to $100 million from $285 million in the year ago period. This was largely due to lackluster performance among its hedge funds.
“Our hedge funds under performed like the industry did,” BlackRock Chief Executive Officer Laurence Fink said in an interview.
A bright spot was revenue from technology services—which includes BlackRock’s Aladdin risk and portfolio management tools—which rose 27% for the quarter. The company’s fast growing iShares exchange-traded funds business had a record $81.4 billion in net inflows for the quarter.
But that performance wasn’t enough to offset a slowdown in the amount of new money committed by clients. BlackRock received net flows of $49.77 billion but that was down from $102.93 billion in net inflows in the comparable period a year ago due largely to a pullback by retail and institutional investors.
Earnings for the asset manager fell 60% to $927 million, or $5.78 a share, from a year earlier. On an adjusted basis, the company posted earnings of $6.08 a share. Analysts expected $6.28 a share.
BlackRock is taking steps to simplify the firm and reallocate resources to priority areas such as illiquid alternatives and retirement investments. Last week it announced roughly 500 job cuts, which affects 3% of its workforce. It took a restructuring charge of $60 million relating to those cuts, BlackRock said Wednesday.
The company also has elevated a lieutenant to Mr. Fink into a new role that gives him broader reach inside the company. That executive, Mark Wiedman, will now focus on the company’s overall strategy and international growth. A key priority going forward is China.
“We have full ambitions to play a big role in China,” Mr. Fink said.
BlackRock Launches Sweeping Overhaul In Bid To Boost Growth
Wall Street giant installs new leaders at key division, reorganizes sales staff and shifts roles for directors.
BlackRock Inc. BLK -0.45% is undertaking its most sweeping organizational overhaul in a decade as the Wall Street behemoth wrestles with how to keep its empire growing.
The world’s largest money manager is installing new leaders at a key investment division, reorganizing sales staff, shifting some two dozen directors into different roles and handing expanded responsibilities to two contenders in the race to succeed Chief Executive Laurence Fink.
These moves are among several announced in an internal memo Tuesday morning. BlackRock has regularly made tweaks to business over time but hasn’t undergone a change at this scale in years, said a person familiar with the matter.
The New York firm grew into a $6 trillion money manager during the bull market of the past decade on the back of funds that replicated public markets cheaply and were easy to trade. It provides everything from exchange-traded funds to stockpicking strategies powered by algorithms to private equity and technology for Wall Street.
But talks around how the firm can strengthen some businesses and find ways to reposition itself have intensified recently as BlackRock has pushed into new areas. The company has also faced slowing net inflows and a price war that is driving fees of basic stock-and-bond funds lower.
The firm, known for constantly moving staffers into new roles, began planning for broad changes last year, the person said. The firm got an additional push during the fourth quarter when a market rout ate into BlackRock assets. BlackRock already disclosed it was cutting 500 jobs this year.
Changes in the markets and asset management industry “represent the biggest opportunity in a decade to differentiate BlackRock—but only if we are willing to be bold and decisive,” Mr. Fink, the firm’s chief executive, and President Rob Kapito said in Tuesday’s memo.
Some of the biggest changes will be in the firm’s alternatives business, which wagers on energy pipelines, loans and other nontraditional assets. It is key to helping the firm capture the wealth of big investment institutions that is flowing from stock markets into private markets.
Currently, the alternatives business is a small part of BlackRock’s profit engine: running 2% of assets and generating roughly 9% of revenue in 2018. Some executives believe the business hasn’t grown as fast as they hoped, said people familiar with the matter, even as BlackRock raised a record $16 billion for illiquid bets last year.
A new private-equity fund recently raised an initial $2.75 billion in commitments but is behind schedule. The alternatives group has cycled through three sets of leadership changes in the past four years.
Edwin Conway, who previously led BlackRock’s interactions with institutional clients, will take over day-to-day management of the alternatives business.
Mr. Conway succeeds David Blumer, who will take an advisory role and leave the firm’s leadership committee. Mr. Blumer, whom staff called a cerebral boss, split his time between Switzerland and New York. He will now spend less time in the firm’s headquarters, the memo said.
The other person leaving the firm’s executive committee is Richie Prager. Mr. Prager, who joined the company 10 years ago and leads the firm’s trading, liquidity and securities lending teams, will be retiring in July.
At the alternatives group, Jim Barry, the firm’s real assets head who leads real estate and infrastructure teams and is known for shaping its wind-and-solar-farm portfolio, will become investment chief. It marks the first time in two years the firm has installed an investing boss atop the group.
The alternatives group will also have more than 50 dedicated sales staff reporting to it for the first time. In the past, the group had often been reliant on sales teams that were also selling other products, putting it at a disadvantage.
The change is one part of a reorganization of the firm’s more than 750-person sales staff focused on pensions, endowments and large institutions. In addition, regional heads will be directing their own sales teams targeting these big customers.
The decision will concentrate more power in the hands of overseas regional bosses such as Geraldine Buckingham, who heads operations in the Asia Pacific, where BlackRock is planning a big China expansion.
BlackRock in the memo said the changes were aimed at making it more responsive to customers around the world. Among the shifts of roughly two dozen directors announced Tuesday, a handful will take on new roles as country and regional heads.
The changes announced Tuesday don’t solve one big question that remains at BlackRock: Who will take over for Mr. Fink when he eventually steps down? There are roughly half a dozen contenders in line to be the top boss.
Among the group of potential successors, two men will take on new duties.
Mark McCombe’s role overseeing the Americas will be split with Mark Wiedman, recently named head of the firm’s international business and corporate strategy. Mr. McCombe will run operations in the U.S. and Canada while Mark Wiedman will be in charge of Latin America, alongside Asia Pacific, Europe, Middle East and Africa.
Meanwhile Mr. McCombe is also assuming wider responsibilities over several sales teams, including those who deal with the world’s largest investment institutions and gatekeepers.
They aren’t the only ones the firm is grooming for the top job. Other potential candidates include Rob Kapito, active-equities head Mark Wiseman, Chief Operating Officer Rob Goldstein and fixed income chief Rich Kushel, according to people familiar with the matter.
Quiet Quarter On Wall Street Hurts Goldman’s Results
Trading revenue dropped 18% in latest quarter; bank still reliant on its securities operation for profits.
Goldman Sachs Group Inc. GS -3.41% ‘s first-quarter profit fell 21% from a year ago as quiet trading and underwriting took a toll across Wall Street.
Goldman posted a quarterly profit of $2.25 billion, or $5.71 a share, on revenue of $8.81 billion. Both are lower than a year ago, when a newly amped-up market generated outsize trading fees.
The bank’s profit beat the expectations of analysts polled by Refinitiv, who predicted $1.97 billion, or $4.89 a share, though revenue came in lighter than the expected $8.99 billion.
Lower expenses helped close the gap as the bank’s new chief executive, David Solomon, lives up to his reputation as a cost-cutting operator. Expenses were down 11% from a year ago, led by a 20% cut in pay and lower brokerage and exchange fees, which are usually tied to trading activity.
The bank said it would raise its quarterly dividend a nickel to 85 cents. Shares were down 2.4% in morning trading.
Trading revenue fell 18% to $3.61 billion compared with a year-ago quarter, in which a suddenly vibrant market spurred investors off the sidelines. That mirrors a 17% drop at JPMorgan Chase JPM -1.52% & Co., which reported quarterly earnings last week.
Without the big consumer business that bolstered JPMorgan’s earnings last week, Goldman is more beholden to its Wall Street traders and investment bankers to power earnings.
The firm has been investing heavily to change. It is growing a consumer bank, partnering with Apple Inc. on its first credit card, raising new investment funds it can collect fees to manage, and building data services it hopes will lure new types of trading clients.
Those business, though, “haven’t yet hit their stride,” Chief Financial Officer Stephen Scherr said earlier this year. Meanwhile, they have required more than $1 billion of investment spending, and investors being asked for patience are looking for signs of progress.
To that end, Mr. Scherr and his boss, Mr. Solomon, have set a slew of financial targets and promised regular updates. That kind of transparency is unusual for Goldman, which historically kept its cards close and relied on steady profits to placate shareholders.
One number they are hyping is net interest income, the difference between what Goldman earns on assets and what it pays on deposits and other liabilities. A number more traditionally associated with Main Street lenders such as JPMorgan and Citigroup Inc., it has been rising at Goldman as the firm leans into lending and gathers retail deposits. It was $835 million in the first quarter, up from $550 million a year ago.
Goldman’s investment-banking revenue was flat from a year ago at $1.81 billion. A rise in merger fees helped offset a slowdown in securities offerings that hit across Wall Street, exacerbated by a government shutdown that delayed approvals for new issuances.
The firm said its backlog of deals, a closely watched measure of future fees, continued to fall.
Goldman’s money-management unit posted revenue of $1.56 billion, down from a year ago, while assets it manages or advises on rose to a record $1.6 trillion, as the market recovered from a late-December swoon.
The business has focused on high-touch service for big pension funds and insurance companies, though it also offers a smattering of low-fee, passive funds and is building a robo-investing service for individual clients.
U.S. Bancorp Plans To Cut Branches By 10% to 15%
Minneapolis bank says it could cut 450 locations by 2021.
U.S. Bancorp could close as many as 450 branches over the next few years, bringing the regional lender’s branch count under 3,000, as the company looks to trim its expenses and push more digital tools.
The branch closure plans come as U.S. Bank now has “more flexibility” after a consent order on the company was lifted, said Chief Executive Andy Cecere on the company’s first-quarter earnings call with analysts Wednesday.
“We’re going to be remolding and changing the footprint,” Mr. Cecere said Wednesday.
In December, U.S. Bank said the Office of the Comptroller of the Currency had lifted an order it had placed on the company back in 2015 related to the Bank Secrecy Act and anti-money-laundering.
The company is looking to trim between 10% and 15% of its branches on a net basis, Mr. Cecere said. Chief Financial Officer Terry Dolan said the cuts will take place by the end of 2021. The company had roughly 3,000 branches at the end of 2018, which span over the Western and Midwestern U.S.
U.S. Bank is one of several banks closing branches. Wells Fargo & Co. is aiming to lower its branch count to under 5,000 by the end of next year.
U.S. Bank has already been lowering its branch count, but a cut of at least 10% would be substantially more than it has done recently.
While they trim branches overall, several banks are also opening new branches or expanding into new markets. Mr. Cecere said U.S. Bancorp would open new branches, too.
The moves come as banks invest heavily in beefing up products that allow customers to transact digitally. U.S. Bank recently rolled out a new version of its app and during the call with analysts Mr. Cecere said that roughly a third of its loan applications are completed digitally, up from 25% a year earlier.
Mr. Cecere said that the moves improve the customer experience, but also improve the company’s efficiency. U.S. Bank’s efficiency ratio— which compares overhead as a percentage of revenue—was 55.4%, down from 55.9% a year earlier.
The bank reported a rise in profit in its first quarter as total net interest income ticked higher, driven by an increase in interest rates and loan growth.
Profit at the Minneapolis-based company climbed 1.4% in the first quarter, to $1.7 billion. Earnings were $1 a share, up from 96 cents a share, which met the analyst consensus from Refinitiv.
Overall net revenue, which combines net interest income and noninterest income, rose 2% to $5.58 billion, slightly missing the consensus estimate from analysts of $5.59 billion. That rise was boosted primarily by net interest income, which increased 2.8%.
Shares of the company were up 1% Wednesday.
Banks reporting first-quarter earnings have gotten somewhat of a bump from the December interest rate increase, as a higher fed-funds rate increases what they charge customers on adjustable-rate loans. Higher rates also lead to banks paying more for deposits, which pressures their earnings.
The company’s net interest margin — an important profitability metric for banks — rose to 3.16% from 3.13%. It rose 0.01 percentage point from the fourth quarter of 2018. U.S. Bancorp reported a 75% increase in interest expenses, primarily because of higher deposit costs.
The bank said its provision for credit losses was $377 million, up 11% from the comparable quarter a year ago. Mr. Dolan said the company’s second-quarter loan-loss provision “will continue to be reflective of loan growth.”
State Street Shares Fall As Bank Braces For Tougher Rate Environment
‘Our results reflect challenging industry conditions,’ CEO tells analysts.
Shares of State Street Corp. dropped 4% Tuesday following the release of its first-quarter results, another sign of the pressure facing certain banks as long-term interest rates soften.
Net interest income—which made up 23% of State Street’s first-quarter revenue—rose 4.7% compared with the first quarter a year prior and fell 3.4% compared with the fourth quarter. However, average total deposits fell 5.9% from the prior year. The net interest margin tightened by a basis point from the prior quarter.
Chief Financial Officer Eric Aboaf said State Street expects net interest income to fall between 1% and 2% in the current quarter as a result of expectations for the yield curve and more noninterest-bearing deposits moving to interest-bearing products.
Shares of State Street have risen 6.4% year to date.
Revenue at custody banks—like the broader banking industry—is being hurt by the yield curve, which inverted last month. The Federal Reserve signaled earlier this year it has stopped raising interest rates for now, which caused the yield on the benchmark 10-year Treasury to drop to its lowest level in more than a year.
An inverted yield curve, which is seen as an indicator of a future recession, happens when short-term yields are higher than long-term yields.
“We’re optimistic we can work through this period of interest rates, but it’s clearly a bit different than what we expected at the turn of the year,” Mr. Aboaf told analysts.
Investors’ reaction to State Street’s results was tempered compared with how they responded to a fellow custody bank, Bank of New York Mellon Corp. when it reported earnings last week. After reporting both profit and revenue that missed analysts’ estimates, shares of the company fell almost 10%.
Overall, State Street’s revenue fell 4.1%, to $2.93 billion in the first quarter, as fee income declined 6.4%. Analysts were expecting $2.92 billion in revenue.
Servicing fees, the largest contributor to revenue for the custody bank, fell 12%. The company attributed the drop to fee concessions, less activity and flows, a weaker equity market and a previously announced client move.
Total assets under custody and total assets under custody and/or administration fell 1.9%. Total assets under management rose 2.8%.
“Our results reflect challenging industry conditions,” Chief Executive Ronald O’Hanley told analysts on State Street’s earnings call, citing continued pricing pressure and industry flows that have been down compared with recent years.
Mr. Aboaf also said investors are moving away from costlier products and that trend also hurt revenue.
“There’s just a shift in the market that’s playing through and our view is we’ve got you complete in both, that new low-cost area and also the higher fee area,” he said.
State Street said its first-quarter earnings were $508 million, which was a 23% decrease from the comparable quarter a year prior. The company reported earnings of $1.18 a share, down from $1.62 a share. Analysts polled by Refinitiv were expecting $1.17 a share.
The company said adjusted earnings were $1.24 a share. Analysts were expecting $1.19 a share.
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