Fund firms' earnings decline on market turmoil
By Martha Slud
NEW YORK, April 23 (Reuters) - Mutual fund firms Putnam Investments and Waddell & Reed Financial Inc. (NYSE:WDR - news) posted sharp declines in quarterly profit on Tuesday, dragged down by slumping stock portfolios and investor withdrawals.
Another money manager, Neuberger Berman Inc. (NYSE:NEU - news), posted a smaller profit decline, as it drew new business to its investment unit for rich clients and benefited from a value-oriented investment strategy despite the market turmoil. On a per-share basis, Neuberger's earnings rose, reflecting fewer shares outstanding because of a stock buyback.
``The best way to describe the contrast between (fund firms' results) is the fact that it's very apparent that value has done a lot better than growth over the past few months,'' said Michael Baum, a fund industry analyst at Friedman, Billings, Ramsey Group.
No. 4 U.S. fund firm Putnam, a division of insurance broker Marsh & McLennan Cos. Inc. (NYSE:MMC - news), recorded a 19 percent decline in pretax operating profit to $175 million in the first quarter, from $217 million, as assets and revenues fell.
The Boston firm, one of the hottest fund managers in the late 1990s with big bets on growth stocks, said individual investors pulled money out of mutual funds, offsetting net new sales for its institutional accounts.
Investors who ``were pumping money into Putnam during the glory years are taking money out,'' said Burt Greenwald, a mutual fund industry consultant. ``They've got a difficult period ahead of them to demonstrate that they can regain the high ground,'' he said of Putnam.
Average assets under management, used to calculate fees for managing money, fell to $310 billion, from $352 billion in the 2001 period. Overall assets under management on March 31 were down 2 percent to $314 billion from year-earlier levels.
Putnam said last month it would merge or close 11 mutual funds in an effort to improve performance. The average Putnam stock fund fell 17.2 percent last year, compared with a 9.9 percent average decline for No. 1 fund firm Fidelity Investments' stock funds, according to fund tracker Lipper Inc., a division of Reuters Group Plc (RTR.L) (NasdaqNM:RTRSY - news).
Shares of parent firm Marsh & McLennan fell $2.61, or 2.35 percent, to $108.56 at midday Tuesday.
ASSET SLUMP HURTS WADDELL
Waddell & Reed, a stock-focused fund manager based in Overland Park, Kansas, recorded a 19 percent drop in first-quarter profit, as average assets under management and investment management fees declined due to weaker markets.
First-quarter net income fell to $24.8 million, or 30 cents per diluted share, from $30.6 million, or 36 cents per share, a year earlier. Average assets under management fell 9 percent to $32 billion during the quarter, from $35.3 billion.
Analysts polled by Thomson Financial/First Call had forecast earnings in a range of 33 to 35 cents per share with a mean estimate of 34 cents per share.
Waddell & Reed shares fell on the news, declining $1.00, or 3.4 percent, to $27.30 at midday Tuesday.
In a conference call, Chairman and Chief Executive Officer Keith Tucker said he is ``cautiously optimistic'' that the ``conviction'' of clients is improving.
``We expect sequential quarterly improvement in EPS (earnings per share) even in difficult financial markets,'' he said. The company is expected to earn 37 cents per share in the second quarter, according to analysts' mean estimate.
NEUBERGER'S MARGINS SQUEEZED
New York-based Neuberger reported a nearly 3 percent decline in first-quarter net profits, as the rough market conditions hurt business despite rising managed assets.
Profits totaled $33.2 million, down from $34.2 million in the year-earlier period. Per-share earnings rose to 47 cents per diluted share, from 46 cents on a split-adjusted basis in last year's first quarter, reflecting a stock buyback.
Analysts polled by research firm Thomson Financial/First Call had anticipated earnings of 48 cents per share.
Assets under management rose to an all-time high of $61.9 billion, up nearly 13 percent, while revenues rose 3.5 percent to $160.2 million.
But profit margins were pressured on its professional securities services unit, triggered by low market volume and fewer transactions. Because of the rough stock market, the firm's private wealth management unit, which oversees about $25.7 billion, also generated a bigger-than-usual portion of its new assets from lower-margin bond investments.
Neuberger Berman shares fell 76 cents, or 1.6 percent, to $46.16 at midday Tuesday. |
