Low Interest Rates Drive Down BofA Wealth Earnings

Bank of America’s wealth unit reported a decline in revenues and a 10 percent drop in profits from a year ago due mostly to low interest rates—even as the overall bank posted a 9 percent increase in profits.

Overall, the Charlotte-based bank reported $3.36 billion, or 27 cents a share, in first-quarter net income, compared to a loss of $276 million, or 5 cents, a year ago due to one-time legal costs. That beat analysts' expectations, according to Seeking Alpha, but its revenue of $21.42 billion missed was about a 6 percent decline from the $22.77 billion reported at the beginning of 2014.

The bank cut costs by 6 percent in the first quarter, not counting the last time period's one-time legal costs. 

Some of that savings came from reduced employee headcount, which is approaching levels not seen since early 2008, before the acquisitions of Countrywide and Merrill Lynch added 100,000 more employees to the bank, CEO Brian Moynihan said in an earnings webcast Wednesday. Bank of America had 219,658 full-time employees at the end of the first quarter, a 2 percent decline from the end of 2014 and an 8 percent decline from the first quarter of 2014. 

Within the Merrill Lynch Wealth Management division, advisor headcount was up by 98 advisors for a total of 14,183, according to spokeswoman Susan McCabe. Attrition within the advisor population remains at historic lows she said.

The Global Wealth and Investment Management division reported $4.52 billion in revenues for the first quarter, down slightly from the $4.54 billion in the previous period. Net income slipped by 11 percent, from $729 million in the first quarter last year to $651 million this year. McCabe said the decrease could largely be attributed to the low interest rate environment, McCabe said Wednesday.

The wealth management division reported total client balances of $2.51 trillion, up 5 percent from a year ago, driven largely by higher market levels and net inflows of $15.1 billion, one of strongest results ever, according to McCabe. First-quarter asset management fees within the division were also up, rising by 11.4 percent year-over-year to $1.65 billion.

A majority of advisors within Merrill Lynch Wealth Management have a combination of commission-based and fee-based business. But as of March, 51 percent of Merrill advisors had half or more of their client assets in fee-based accounts, McCabe said.

Advisor productivity for the first quarter was $1.35 million per "experienced" advisor (meaning those not still in the training program) and $1.04 million for all advisors, including trainees, a decline from the record high of $1.4 million per experienced advisor and $1.1 million overall reported in the fourth quarter.

When asked Wednesday about the competitive threat advisors face from so-called “robo-advisors,” Moynihan said online advice platforms will most likely serve clients with assets below the $250,000 minimum for Merrill Lynch advisors. He added the bank’s brokerage assets currently stand at roughly $118 billion, up 18 percent in the number of accounts. The bank’s rate of growth has surpassed the industry’s growth rate, he said.

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