BlackRock, MSCI shares rise on ETF fee cut plan

Tue Oct 16, 2012 12:55pm EDT

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(Reuters) - Shares of market index provider MSCI Inc (MSCI.N) jumped 6 percent on Tuesday, a day after a big customer, BlackRock Inc (BLK.N), said it was cutting fees on just a handful of exchange-traded funds and none tracking MSCI benchmarks.

Shares of BlackRock, the world's largest money manager, rose about 2 percent as analysts said fee reductions at its iShares line of ETFs would have less impact on the New York firm's bottom line than they had anticipated.

MSCI shares had dropped as much as 30 percent on October 2, when another major client, Vanguard Group, said it was dumping MSCI indexes from 22 of its largest funds to save money, prompting speculation that BlackRock might make a similar move.

Vanguard said it was switching to indexes with cheaper licensing fees from FTSE Group and the University of Chicago's Center for Research in Security Prices.

MSCI has grown rapidly, thanks to licensing fees paid by ETF fund managers, like BlackRock and Vanguard. The fund companies pay MSCI to track its indexes at rates calculated as a small percentage of each fund's assets.

BlackRock had warned for weeks it would reduce fees on some of its most profitable funds to better compete with rivals like Vanguard and Charles Schwab Corp (SCHW.N).

But on Monday afternoon, it announced it would cut fees on only six of its iShares funds, fewer than analysts had expected, and would create four new low-cost funds, including three using MSCI indexes. BlackRock offers more than 600 iShares ETFs.

Under the plan, the fee on the iShares Core S&P Total U.S. Stock Market ETF, for example, will drop to 7 basis points - or 7 hundredths of a percentage point - from the current 20 basis points.

The fee cuts will lead to an annual revenue loss of $35 million to $40 million and reduce earnings per share by less than 1 percent, Luke Montgomery, an analyst at Bernstein Research, wrote in a report.

"This is well below our base estimate," he said.

New York-based MSCI, a leading provider of indexes, risk management advice and other investment analysis services, competes with Thomson Reuters Corp (TRI.TO)(TRI.N) in some areas.

Until Vanguard's move a few weeks ago, investors believed that MSCI, best known for its all-world and emerging market stock indexes, would be immune from price wars in the $1.5 trillion global exchange-traded fund market.

MSCI shares gained $1.57, or 6.1 percent, to $27.16 at midday on the New York Stock Exchange.

Through Monday's close, MSCI shares had lost 22 percent this year.

BlackRock gained $4.32, or 2.3 percent, to $189.69 on the New York Stock Exchange. It hit a session high of $190.87.

BlackRock shares are up 7 percent in 2012 through Monday, trailing the 15 percent gain in the Standard & Poor's 500 Index.

With some $3.6 trillion in total assets under management at the end of June, BlackRock is the largest money manager in the world. Of the total, ETFs comprised $645 billion - also more than any other firm.

(Reporting by Aaron Pressman; Editing by Jeffrey Benkoe)

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