Bank of America Corp's global wealth and investment management division, largely composed of its Merrill Lynch retail operations, was a bright spot for the No. 2 U.S. bank, which reported lower-than-expected overall results on Wednesday.
The wealth unit, which includes the bank's U.S. Trust and other private banking businesses, said first-quarter profit rose 31 percent from last year to $720 million, while revenue rose 6.6 percent to $4.4 billion, driven in part by higher asset management fees related to stronger markets.
Bank of America said those figures were record highs for the division since the company acquired Merrill Lynch in early 2009 in the midst of the financial crisis. The company attributed the wealth unit's solid first-quarter results to higher transactional revenue and higher asset management fees on the back of stronger markets.
Merrill alone generated $3.7 billion in revenue, up 6.9 percent from last year, accounting for roughly 83.2 percent of the unit's total revenue. Client balances at the brokerage unit rose 6.2 percent to $1.8 trillion on the back of stronger markets and flows.
Merrill is among the largest brokerages in the United States, often neck-and-neck with Morgan Stanley's wealth management division for the top spot in terms of adviser headcount and client assets under management. Morgan Stanley is expected to report quarterly results on Thursday.
Bank of America overall reported a lower-than-expected first-quarter profit of $2.62 billion, or 20 cents per share, roughly quadrupled since last year but below analysts' expectations as revenue fell.
Bank of America shares were down 4.8 percent at $11.69 on Wednesday morning on the New York Stock Exchange.
MORE FEE-BASED RELATIONSHIPS
Wealth clients added $20.4 billion of long-term assets for bankers and brokers to manage during the quarter, the highest quarterly amount since the Merrill merger. These are assets that have an investment strategy of longer than a year, like fee-based or managed accounts.
Merrill said more of its advisers' clients moved their assets into fee-based relationships and accessed managed solutions during the quarter.
Bank of America this year decided to remove the cap on awards offered to its advisers for bringing in more fee-based assets, as well as other banking, lending and annuitized products, as a part of changes the firm announced in December to its 2013 pay plan.
The changes came as wealth management businesses are increasingly seen as a key revenue driver for many major Wall Street companies. And the results have already been felt in the first quarter, as Merrill said total referrals between the company's lines of business nearly doubled year-over-year.
Loan balances in the wealth division grew $9.1 billion, or 9.3 percent, from last year to a record $107 billion, primarily due to growth in securities-based lending and residential mortgage loans to wealthy clients.
ADVISER PRODUCTIVITY UP, HEADCOUNT DOWN
The ranks of Merrill's Thundering Herd since the end of December fell by 441 brokers to 14,474 at the end of the first quarter, though adviser productivity picked up.
The firm said the decline in its broker force was "heavily driven" by the attrition of underperforming advisers in its Practice Management Development trainee program.
Average productivity rose to $971,000, compared with $927,000 at the end of December. Both figures represent annualized revenue. Since the same period last year, average productivity is up almost 9 percent from $891,000 at the end of March last year.
Merrill said the defection of its experienced advisers to competing firms during the first quarter was at its lowest level in roughly two years.
Since the start of the year, Merrill has added at least 15 veteran advisers who managed more than $2.5 billion in client assets at rival firms, including Morgan Stanley Wealth Management, Wells Fargo Advisors and UBS Wealth Management Americas, based on moves tracked by Reuters.
Reuters tracks the movement of individual advisers or teams that managed at least $100 million or more in client assets, which typically translates to $1 million or more in annual revenue production.
By the same count, Merrill has lost at least 29 veteran advisers who managed at least $4.6 billion in client assets at the firm to rival brokerage units.
(Reporting by Ashley Lau in New York; editing by Matthew Lewis)