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.
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