2nd UPDATE: BlackRock 2Q Profit Up 43% Despite Difficult Market
July 20 2011 - 12:48PM
Dow Jones News
BlackRock Inc.'s (BLK) second-quarter earnings rose 43% as
assets under management at the world's largest money manager grew
by 16% from a year earlier.
Despite the strong quarter, Chairman and Chief Executive Larry
Fink lashed out at politicians, both domestic and overseas.
"The greatest inhibitor to economic vitality in the U.S. and
Europe is politics," he said in a conference call. He hoped the
"politics of the U.S. and the politics of Europe will do the right
thing, so we, as investors and as leaders of businesses, can focus
on the long term and investing in the long term, which then means
hiring and job growth."
He said uncertainties surrounding the sovereign debt crisis in
Europe and political stalemate on the U.S. debt ceiling caused some
investors to sell down their portfolios.
"I think it is a mistake" to de-risk, he said.
In the second quarter, BlackRock had outflows from its equity,
alternative and advisory businesses. Its cash management also
suffered withdrawals on continued low interest rates.
But the outflows were more than offset by investment performance
and growth in fixed income and multi-asset products.
Assets under management rose to $3.659 trillion as of June 30,
from $3.15 trillion a year earlier and $3.648 trillion the previous
quarter.
BlackRock reported a second-quarter profit of $619 million, or
$3.21 a share, up from $432 million, or $2.21 a share, a year
earlier. Excluding prior-year acquisition-related costs and other
items, earnings were up at $3 from $2.37. It acquired Barclays
Global Investors, which manages money for both institutional and
individual investors around the world, for $13.5 billion in
December 2009.
BlackRock's revenue increased 16% to $2.35 billion mostly owing
to increased long-term assets under management. Analysts polled by
Thomson Reuters most recently forecast earnings of $2.88 on revenue
of $2.32 billion.
Adjusted operating margin also improved to 39.7% from 38.8% in
the second quarter last year. Fink said the firm is still working
to expand the margin to over 40%. Fink said the firm is still
working to expand the margin to over 40%.
Despite investors' caution, BlackRock's new business pipeline
remained robust at $84.3 billion at July 14, it said, including
$13.0 billion funded since the end of the quarter and $71.3 billion
of new mandates to be funded.
Fink said that investors are "barbelling" by increasing exposure
to products that track market performance and, at the same time,
adding strategies that they hope will generate higher alpha, or
returns better than market benchmarks.
Some 90% of BlackRock's revenue in the second quarter came from
base fees, 5% of revenue came from BlackRock Solutions and advisory
businesses, and 2% came from performance fees. Base fee growth came
from higher fees in all long-term asset classes, the firm reported,
with 25% of base fees coming from active equity and 23% coming from
iShares exchange-traded funds.
The firm has been on a hiring spree in recent months, adding new
employees to the real estate, private equity and communications
teams. Fink pointed to the downsizing of other firms as creating a
great environment for hiring at BlackRock.
BlackRock, which pays out 44% of its earnings as dividends, says
the company continues to look at "small liftouts of teams and
people," but not big mergers. Fink said the board may also use free
cash flow for dividends and stock repurchases. BlackRock in May
bought back shares Bank of America Corp. (BAC) held in the money
manager for about $2.55 billion, ending a legacy investment the
bank inherited from its purchase of Merrill Lynch & Co.
Another major investor, PNC Financial Services Group Inc.'s
(PNC) still has a 20% economic interest in BlackRock.
Shares were up 1.4% to $186.20 in recent trading.
-By Amy Or, Dow Jones Newswires; 212-416-3142;
amy.or@dowjones.com
--Mary Pilon contributed to this article.
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