Revenue was up in the second quarter for Merrill Lynch’s wealth management business, while net interest income from client banking assistance made up for asset under management fee declines during the market’s “challenging quarter,” according to CEO Brian Moynihan and CFO Alastair Borthwick during a presentation on Bank of America’s second quarter earnings.
“In our wealth management segment, in the period of declining market values, where stocks and bonds had the worst first half in five decades, revenue still grew in that business 7% year over year,” Moynihan said during the Monday morning call.
In total, revenue for the bank’s global wealth and investment management business (including Merrill and Bank of America Private Bank) climbed to $5.4 billion based on higher balances and interest rates, while Merrill Wealth Management’s total client balances topped $2.8 trillion, down from $3.1 trillion a year ago.
Total client balances were slightly below $3.4 trillion, an 8% decrease from the first quarter, “driven by lower market valuations, partially offset by net client flows,” according to the company’s second quarter results.
The total AUM for wealth management was $1.1 trillion ($1.4 trillion including Private Bank), a slight drop from $1.5 trillion in the second quarter 2021 and $1.6 trillion from last quarter. Total wealth advisor head count was 18,449, down about 100 from the same time last year. Merrill added about 4,500 net new households this quarter.
“We also gained 650 more in the Private Bank this quarter,” Borthwick said. “And that’s a very solid showing by both given the complexities of serving our clients in challenging market conditions over the last 90 days.”
Net income for the combined wealth and investment management units jumped 16% from a year ago to $1.2 billion, while noninterest expenses climbed 2% to $3.9 billion, due to “higher employee-related expenses,” according to the company. The wealth management business also reported higher client engagement, with 59% more financial planning reports this quarter versus one year ago.
Bank of America retained hundreds of millions for expenses connected to an unresolved regulatory matter of using unapproved personal devices, which Borthwick called an “industrywide issue.” Like Morgan Stanley last week, BofA put $200 million toward potential penalties stemming from the issue. The bank also would pay more than $200 million to resolve investigations related to its misuse of prepaid debit cards to distribute unemployment benefits in several states during the pandemic.
Overall, BofA reported a net income of $6.2 billion, with a 14% dip in pretax income to $6.9 billion. But revenues increased 6% to $22.7 billion, and net interest income climbed to $12.4 billion due to “higher interest rates, lower premium amortization and loan growth.” In consumer banking, the institution’s net income was $2.9 billion, client balances were up 4%, with record average deposits and a 10% boost in combined credit and debit card spending.
Moynihan said the bank was “mindful” of talk of a potential recession and that the institution had prepared during the past decade for such an event.
“But as we see in our current customer base, we are not seeing them slow down in terms of their activities,” he said.
Last week, Morgan Stanley and Wells Fargo also released their quarterly earnings. Morgan Stanley’s wealth management revenues dipped 6% year over year, though the bank attributed the dip to “notable declines in deferred cash-based compensation plans.”
Meanwhile, Wells Fargo’s total revenue in its wealth and investment management business jumped 5% from the year-ago quarter to $3.7 billion. Net interest income was up 50% year over year and 15% from the first quarter of this year due to higher interest rates, while noninterest income dropped 5% year over year and 6% sequentially, because of lower asset-based fees due to the market and “lower transactional activity,” according to the company.
Noninterest expenses dipped 8% from the first quarter based on lower personnel expenses because of “seasonality,” as well as lower revenue-related compensation, according to Wells Fargo.