As full-year bank result reports come out in a few days' time, here is a reminder of what happened during the third quarter of what was a tumultuous year.
Here is a summary of the results from a range of the major banking groups - and some other financial actors - around the world. The results focus on the largest institutions which provide wealth management. Not all banks report on a calendar year schedule, and not all of the institutions are alike, so the results from standalone institutions such as Julius Baer should be viewed differently from wealth management results embedded within a larger institution. These results may be subsequently revised. As not all the banks reported on the same day, the exchange rate comparisons with the dollar have been taken out. We hope readers find it useful to see thse figures collated into one article. To comment, email firstname.lastname@example.org
The consumer and wealth management arm chalked up net revenues of $1.49 billion for the third quarter of 2020, 13 per cent higher than the third quarter of 2019 and 10 per cent higher than the second quarter of 2020. Within wealth management specifically, net revenues rose by 6 per cent year-on-year to $1.17 billion, helped by higher management and other fees, primarily reflecting the impact of higher average assets under supervision and higher transaction volumes, partially offset by a lower average effective management fee due to shifts in the mix of client assets and strategies.
It reported net income of $3.2 billion for the third quarter, down by 34 per cent year-on-year. Nevertheless, the numbers were viewed as a stabilizing trend after it had to set aside money to cover bad loans and suffered a sharp fall in profit in the middle of the year. Earnings per share fell by a third to $1.40, but beat the 93 cents forecast by some analysts. Operating costs stood at $11 billion for the quarter, rising by 5 per cent based on putting in greater risk management controls and the ongoing COVID-19-related expenses.
Bank of America
The group’s global wealth management arm logged record client balances of $3.1 trillion, rising by 6 per cent, driven by higher market valuations and client flows. The private bank added more than 1,400 new relationships from the start of 2020. At group level, Q3 net income was $4.9 billion, declining from $5.8 billion.
The asset and wealth management arm of JP Morgan said that it logged net income of $877 million in Q3, up from $668 million. Net revenue was $3.74 billion, up from $3.58 billion. Assets under management stood at $2.6 trillion, rising by 16 per cent.
The wealth and investment management arm of Wells Fargo, covering business lines such as Abbot Downing, reported that total revenue for the three months to September 30 came in at $3.794 billion, up from $3.66 billion in the previous quarter but sliding from $5.141 billion a year ago. Net income at this business unit rose to $463 million in Q3 from $180 million in the previous three months, but it is way below the $1.28 billion result for the same quarter of 2019. Average assets stood at $88.2 billion, against $87.7 at the end of June.
The bank’s net revenues were $11.7 billion in the third quarter - rising from $10 billion a year before. It chalked up net income in Q3 of $2.7 billion, up from $2.2 billion a year before. The Wall Street firm, which a week before announced that it was buying asset management house Eaton Vance, said that its wealth management arm delivered pre-tax income of $1.1 billion with a reported pre-tax margin of 24.0 per cent. It said the results “reflect strong fee-based flows and significant increases in bank lending and deposits."
Net revenues in Q3, 2020 stood at $4.657 billion in the wealth management side, up from $4.358 billion a year earlier. Fee-based client assets in wealth management reached $1.333 trillion at the end of September 2020, up from $1.186 trillion a year before. Wealth management total compensation rose to $2.684 billion from $2.34 billion a year ago. Morgan Stanley said that its provision for credit losses on loans and lending commitments was $111 million for Q3, compared with $51 million a year earlier, but down from Q2 this year.
The US group reported an attributable net income of $944 million for the third quarter of 2020, down from $1.04 billion a year earlier. Total revenue stood at $3.847 billion, down from $3.861 billion a year ago. Its pre-tax operating margin came in at 30 per cent down from 33 per cent a year earlier. On the wealth management side, Q3 revenue came in at $277 million, down from $279 million a year earlier. Across the wealth and investment group, pre-tax income was $245 million, down from $295 million. The year-on-year fall in wealth revenues was mainly caused by lower net interest revenue.
Wealth management client assets stood at $265 billion at the end of Q3, against $259 billion a year before. Assets under management across the whole wealth and asset management segment stood at $2.041 trillion, from $1.881 trillion.
The US firm logged a year-on-year slip in net income of $294.5 million for the third quarter, against $384.6 million. The latest results included a $43.4 million pre-tax charge related to a corporate action processing error. Custody and administration and assets under management performed well, ending the quarter at $13.1 trillion, rising by 13 per cent and $1.3 trillion, up by 9 per cent from the prior year, respectively. Corporate and investment services, trust, investment and other servicing fees rose by 4 per cent year-on-year to $584.9 million, Northern Trust said. Wealth management fees, including work with family offices, rose by 1 per cent over the 12-month period to $418.9 million. Within family offices, fees were $72.2 million, up by 6 per cent. Wealth management trust, investment and other servicing fees increased compared with the prior-year quarter, primarily due to favorable markets, partially offset by higher money market mutual fund waivers, it added.
Net income stood at $1.364 billion in Q3, rising by 22 per cent on the same quarter of 2019. Earnings per share on a diluted basis were $8.87, up by 24 per cent. Revenue rose by 18 per cent to $4.369 billion. Total assets under management stood at $7.808 trillion, rising by 12 per cent on a year earlier. Total net flows were $128.7 billion, rising from $84.246 billion.
The global wealth management arm clocked up pre-tax profit of $1.057 billion in the three months to the end of September, rising by 18 per cent year-on-year, and earning record Q3 pre-tax profit in Asia and the Americas. GWM’s results were driven by lending growth and higher transaction-based income, while costs fell. Operating income grew by 3 per cent on continued high levels of client activity and greater market volatility, causing a 16 per cent rise in transaction-based income. Net interest income slipped by 2 per cent, however, as further pressure from lower dollar interest rates was mostly offset by higher revenues from lending. Recurring net fee income also reduced marginally, with shifts in invested assets into lower-margin funds and advisory mandates.
Invested assets rose to an all-time high of $2,754 trillion. Net new money was $1.4 billion, with tax-related outflows in the US of $5.5 billion.
Within the international wealth management business, adjusted net revenue fell by 12 per cent year-on-year in the third quarter to SFr1.42 billion; pre-tax income fell by 30 per cent on a year to SFr268 million. At the Suisse Universal Bank, adjusted pre-tax income was flat on the quarter, at SFr471 million; net revenue inched higher by 1 per cent reaching SFr1.294 billion. In Asia-Pacific, adjusted pre-tax income rose by 4 per cent, at SFr179 million and net revenues rose by 7 per cent, at SFr728 million.
Assets under management stood at SFr413 billion at the end of September 2020, an increase of 3 per cent since the end of June 2020, as the stock market recovery that started in March 2020 continued into the third quarter of 2020. Since the end of 2019, AuM was down by 3 per cent. Net new money inflows rose considerably in the third quarter of 2020, resulting in an annualized growth rate of close to 4 per cent for the first nine months of 2020 (compared with 2.3 per cent for the first half of 2020 and 2.8 per cent for the full year 2019).
After an exceptional increase in market volatility and trading volumes had driven the gross margin to a very high level in the first four months of 2020, it fell back towards a more sustainable level in May-June 2020. In the third quarter of 2020, the gross margin remained at close to the level of those two months, with an essentially unchanged contribution from client-activity-driven income and a slightly lower contribution from net interest income, as loans grew less than AuM. As a result, the gross margin in the first nine months of 2020 was just over 89 basis points (bps). This compares with 92 bps in the first half of 2020 and 82 bps for the full year 2019.