Top wealth manager profits hit by expenses

NEW YORK (Reuters) - Retail brokerages modestly boosted fourth-quarter profits as higher merger and recruiting expenses largely offset growing asset management fees.

On the busiest day of bank earnings, several of Wall Street's biggest wealth managers reported gains in fees, commissions and client assets. But the cost of mergers and thousands of brokers seeking new jobs hurt results.

Morgan Stanley, which merged its wealth management arm with Citigroup's Smith Barney to form Morgan Stanley Smith Barney on May 31, said the nation's largest retail brokerage generated pretax income of $231 million, bouncing back from a year-ago loss of $51 million.

Net revenue rose 4 percent to $3.14 billion from the third quarter, a more useful comparison, but operating expenses rose 6 percent to $2.91 billion.

Net income at the unit fell 14 percent to $162 million. After stripping out Citigroup's 49 percent stake, Morgan Stanley realized a $29 million profit and a paltry 1 percent return on equity.

Total client assets rose 2 percent to $1.56 trillion, even as Morgan Stanley Smith Barney's brokerage force fell by 25 to 18,135 during the quarter. The firm said U.S. retail clients withdrew $4.7 billion in assets, the third straight quarter of net declines.

Bank of America's (BAC.N) Merrill Lynch Global Wealth Management fared better. Profit rose 9.5 percent to $446 million from a year earlier. Earnings rose 43 percent from the third quarter, which had higher credit losses.

Net revenue from Merrill's "Thundering Herd" rose 1.6 percent to $3.08 billion from the previous quarter, as last year's market rally boosted assets under management by 5 percent and fueled a 5 percent jump in asset management fees.

Total client brokerage assets rose 2.4 percent to $1.27 trillion from the third quarter.

But operating expenses rose to 2.4 billion from $2.27 billion, reflecting merger integration costs.

Merrill Lynch boosted its financial adviser force to 15,006 from 14,979 in the third quarter -- though headcount is still down from 15,822 in the first quarter last year.

The year-end increase of advisers reflected high retention rates, increased hiring and training new advisors. Bank of America also said its Merrill Lynch integration is on track, with cost savings surpassing original first-year estimates.

Bank of America bought Merrill Lynch on Jan 1. last year.

(Reporting by Joseph A. Giannone. Editing by Robert MacMillan)