* Third-quarter EPS $3.65 vs $3.23 year earlier
* Adjusted EPS of $3.47 beat Wall St estimate of $3.31
* Assets under management rise 10 pct to $3.67 trillion
* ETF fee cuts could lower annual revenue $35 mln to $40 mln
Oct 17 BlackRock Inc, the world's
largest money manager, said third-quarter profit rose 8 percent
as investors poured cash into its iShares line of
The New York-based company fired on almost all cylinders
during the quarter, also showing strength in bond mutual funds,
its Lifepath funds for 401(k)-type retirement accounts, hedge
fund performance fees and risk management services. The results
highlighted the firm's breadth of offerings built and acquired
by Chief Executive Laurence Fink over the past two decades.
Fink said customers dealing with market volatility and
uncertainty gravitated to BlackRock products. "BlackRock was
built for these times, to be responsive to our clients, to
helping our clients overcome the uncertainty around all these
big macro issues," Fink said on a conference call with analysts.
He pointed to record quarterly flows into iShares since
BlackRock acquired the business in 2009 and the highest flow
into retail bond funds in more than 10 years.
Net income for the third quarter totaled $642 million, or
$3.65 per share, compared with $595 million, or $3.23 per share,
a year earlier, BlackRock said.
BlackRock slightly exceeded Wall Street expectations on two
key metrics closely followed by investors, analysts said.
Earnings per share, excluding some one-time items and deferred
compensation costs, jumped 23 percent from a year ago to $3.47.
Analysts, on average, expected $3.31, according to Thomson
BlackRock's profit margin adjusted for the same items hit
40.7 percent, up 1.5 percentage points from a year earlier.
"Enough moving parts as always but earnings, (assets under
management) and flows are growing," Nomura analyst Glenn Schorr
wrote in an initial report on the earnings. "The stock is still
attractive in our view."
ONE BIG OUTFLOW
Overall, investors withdrew $43 billion from BlackRock's
long-term funds and accounts. Excluding $74 billion an
institution withdrew from an indexed bond account, BlackRock
took in $31 billion from investors.
That included a record $25 billion going into iShares funds,
with more than three-quarters flowing into stock ETFs, $6
billion into retail bond funds and $10 billion into funds aimed
at 401(k)-type defined contribution retirement accounts.
BlackRock declined to name the client that moved to
competitors and sought to play down the impact, with CEO Fink
describing the lost business as "one of our lowest fee
products." The firm lost $36 billion from a similar one-client
move in the first quarter.
"I am not going to chase business for window dressing my
(assets under management) as some of our competitors are
certainly doing," Fink said. "It does not make economic sense in
BlackRock also saw institutional customers withdraw $2.9
billion from its higher-fee alternative investments and $5
billion from actively managed stocks.
Analyst Craig Siegenthaler at Credit Suisse said he was
cutting his 2013 earnings per share estimate for BlackRock by 14
cents to $14.52 due in part to "weaker flows in high fee
Total assets under management at BlackRock hit $3.67
trillion, up 3 percent during the quarter and up 10 percent from
a year ago.
ETF FEE CUT IMPACT
The strong quarter for iShares came despite competition from
lower-cost competitors in the United States like Vanguard Group
and Charles Schwab Corp. On Monday, BlackRock unveiled
a plan to cut fees on six iShares funds and introduce four new
The fee reductions could reduce BlackRock's annual revenue
by $35 million to $40 million, BlackRock President Robert Kapito
said on the call with analysts. But growth produced by the four
new ETFs could overtake the losses, he said.
"We expect to see incremental flows that will over time more
than offset potential revenue impacts," Kapito said.
BlackRock's fee cuts followed ETF price reductions by Schwab
last month as well as Vanguard's announcement on Oct. 2 that it
was switching to lower cost index providers on 22 of its largest
ETFs, likely as a prelude to reducing fees.
But Vanguard's decision to switch away from leading index
provider MSCI to lesser known competitors is prompting
some investors to switch to BlackRock funds, which still track
MSCI indexes, Fink said.
Vanguard denied that the index change was having a negative
effect on its ETF flows. "Vanguard's planned benchmark changes
and the future associated cost savings have been very
well-received by our clients," spokesman John Woerth said.
"Vanguard is leading the U.S. ETF industry with $41 billion in
net cash inflow through September and our momentum continues
unabated in October."
BlackRock's Fink took pains to deny that the industry was
engaging in a price war. "We have got to move on from this myth
about a price war," Fink said in his most heated remarks on the
90-minute call. "We had our healthiest quarter. We are very
optimistic about where we are."
Overall, third-quarter revenue at BlackRock rose 4 percent
from a year earlier to $2.3 billion. Performance fees jumped 12
percent to $103 million on strong gains at BlackRock's hedge
funds and other accounts that garner a portion of profits based
on their investing track records.
Revenue from risk management advice and other services at
its BlackRock Solution unit rose 9 percent to $128 million.
Shares of BlackRock closed down 84 cents, or 0.4 percent, at
$189.13 on the New York Stock Exchange on Wednesday. The shares
had gained 7 percent so far this year through Tuesday's close,
trailing the 16 percent gain in the Standard & Poor's 500 Index