BlackRock profit surges as investors deposit $40B

CEO Laurence D. Fink said BlackRock has the potential to increase its asset base by about 5% annually by developing new ETFs and expanding its reach among individual investors.
JAN 16, 2014
Fourth-quarter profit at BlackRock Inc. increased 22% as investor deposits boosted client assets and fees for managing them. Net income rose to $841 million, or $4.86 a share, from $690 million, or $3.93, a year earlier, the company said in a statement Thursday. Adjusted profit of $4.92 beat the $4.33 a share average estimate of 19 analysts surveyed by Bloomberg, excluding certain items. BlackRock increased its quarterly dividend by 15% to $1.93 per share. Chief executive Laurence D. Fink has said BlackRock has the potential to increase its asset base by about 5% annually by developing new exchange-traded funds and expanding its reach among individual investors. BlackRock's assets increased 5.6% to $4.32 trillion from the previous quarter as the firm attracted $40 billion in deposits from investors. “They look very strong to me,” said Luke Montgomery, a research analyst who covers asset managers at Sanford C. Bernstein & Co. Inc. “The flows are very encouraging across the board.” Investors put $24.1 billion into BlackRock's stock ETFs while pulling $3.5 billion from the fixed-income ETFs. Active bond funds had deposits of $4.3 billion as their stock counterparts saw deposits of $892 million. Multi-asset products, which invest in a mix of stocks, bonds and other assets, attracted $17.4 billion. The firm, which emerged largely unscathed from scandals including one in 2003 when competitors were accused of market timing, has drawn regulatory scrutiny recently. The firm on Jan. 8 agreed to end an analyst survey program that New York's Attorney General concluded could be used to execute trades based in part on nonpublic information. Also last week, BlackRock said one of its employees is facing a civil proceeding by an Italian securities regulator that alleges he used nonpublic information to avoid losses for clients last year. “Especially in today's regulatory climate, it is vital that every employee of BlackRock look to do the right thing in every situation every day,” Mr. Fink said in Thursday's statement. REVENUE RISES BlackRock's revenue rose 9.4% to $2.8 billion, driven by an increase in advisory fees earned for managing client money and the performance fees the firm earns for beating certain benchmarks. Expenses rose 7.2% to $1.6 billion on higher head count and incentive compensation, and fund expenses. The firm has revamped equity and fixed-income teams to revive deposits into active products. Chris Leavy, chief investment officer of BlackRock's fundamental equity unit in the Americas, replaced portfolio managers at strategies that represented about 40% of the division's $115 billion at the time. Mr. Leavy is currently on medical leave. The firm also reorganized its bond division to give unit heads Rick Rieder and Kevin Holt greater autonomy and accountability. During the third quarter, BlackRock's active bonds attracted $7.2 billion, the most in almost four years. In March, BlackRock enhanced its partnership with Fidelity Investments to sell more ETFs directly to individual investors. “We continue to believe the firm faces challenges regarding its positioning with retail ETF users, where we expect a lot of the incremental growth in the ETF market to occur over the next few years,” Mr. Montgomery, along with other Bernstein analysts, wrote in a Jan. 10 research note. BlackRock reported earnings before the start of regular U.S. trading Thursday. (Bloomberg News)

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