BlackRock earnings soar, get ETF jolt

NEW YORK (Reuters) - BlackRock Inc's (BLK.N) fourth-quarter earnings more than quadrupled as the world's biggest asset manager rebounded from the recession and gave investors an indication of the jolt it may get from its move into exchange-traded funds.

The December 1 acquisition of Barclays Global Investors turned BlackRock, historically a fixed-income money management firm, into a leader in exchange-traded funds.

The deal generated more revenue than expected in December, and BlackRock had strong overall fund flows in the quarter, said Jeffrey Hopson, an analyst with Stifel Nicolaus & Co.

Fourth-quarter net income rose to $256 million, or $1.62 a share, from $52 million, or 39 cents a share, a year earlier.

Excluding special items, profit was $2.39 a share. On that basis, the results surpassed analysts' average forecast of $2.10, according to Thomson Reuters I/B/E/S.

Revenue rose 45 percent to $1.54 billion, including $278 million in fees generated from BGI in December, the company said.

With $3.3 trillion in assets under management, BlackRock now manages more money than the entire hedge fund industry following the BGI deal.

"This was a very strong quarter," said Timothy Ghriskey, a co-founder of Solaris Group, an investment firm that does not have a position in BlackRock shares. "They did have very good flow of new assets. But a big chunk of it was in passive equities, which is low margin."

In the quarter, BlackRock reported net inflows of $39.73 billion, which included roughly $17 billion in equities, $17 billion into equities and $1.3 billion in hedge funds and other alternative investments. There were also $422 million going into cash management products.

The company also provided an estimate for what net inflows would have looked like in the quarter if BlackRock had closed on the BGI acquisition in September.

On a pro forma basis, BlackRock said net inflows would have totaled $82 billion with index equity products bringing in $46 billion and the firm's bread-and-butter bond business taking in $42.9 billion.

In acquiring BGI, New York-based BlackRock added 3,500 employees and now has more staff in London than anywhere else in the world. The transaction also helped expand BlackRock's investor base.

BlackRock reported earnings a day before several top fund companies, including Janus Capital Group Inc (JNS.N), T. Rowe Price (TROW.O) and Invescco (IVZ.N), are due to report quarterly results. Those companies' fund businesses have some overlap with BlackRock's, but BlackRock is generally much more institutional in orientation.

STRONG OVERSEAS BUSINESS

Chief Executive Officer Laurence Fink said in a conference call that about 40 percent of the firm's business comes from outside the United States, a marked change from a few years ago.

While Fink said "merger integrations are hard," he added that the company's plan to offer investors a broad array of stock and bond investments is on target.

In January, BlackRock saw more money than expected move into its ETF products, he said.

The trend is for money to move out of ETFs in the first quarter of the year. Fink said he is not sure if what BlackRock is seeing in January with ETFs will continue into February and March.

BlackRock incurred $152 million in added expenses in the fourth quarter because of the BGI deal and the integration of the ETF business. Fourth-quarter operating expenses totaled $1.16 billion, up from $726 million a year earlier.

BlackRock's strong earnings came two days after the asset manager suffered a black eye for a misstep in a multibillion-dollar commercial real estate venture.

On Monday, BlackRock and Tishman Speyer Properties agreed to give creditors control of New York City's Stuyvesant Town-Peter Cooper Village housing complex.

The Tishman-BlackRock group bought the complex for $5.4 billion in 2006; the property is now valued at $2 billion or less. Earlier this month the group defaulted on $4.4 billion of debt used to finance the purchase.

In Wednesday's conference call, analysts did not bring up the Stuyvesant matter. But Fink addressed it in an opening statement, calling it a mistake and saying the company is not perfect.

The BlackRock Solutions business took on 14 new assignments in the fourth quarter. The unit has emerged as a major adviser to the U.S. Federal Reserve on a number of government bailouts, including the controversial rescue package for American International Group (AIG.N).

BlackRock said the new jobs for BlackRock Solutions reflect a continued focus on risk management by investors and institutions.

BlackRock shares closed up $2.06 at $225.19 on Wednesday on the New York Stock Exchange.

(Reporting by Matthew Goldstein; Editing by Lisa Von Ahn and John Wallace)