BlackRock shares soar on earnings, Merrill stake move

BOSTON (Reuters) - Shares of BlackRock Inc (BLK.N) rose as much as 20 percent after the biggest publicly traded U.S. asset manager reported a better-than-expected quarterly profit on Thursday and said its top shareholder would not sell its stake.

Despite tough markets, BlackRock was optimistic about its prospects in coming quarters after winning $63.2 billion in new business in the three months to June 30, mainly to manage portfolios of clients hurt by the credit crisis.

"It was a very impressive quarter given the market environment," said Morningstar analyst Andrew Richards. "I'd be surprised if we saw these kind of numbers across the board in the industry."

Investors expressed relief when BlackRock, a beneficiary of the credit crisis due to its fixed-income expertise, said Merrill Lynch MER.N would not sell any of its 49.8 percent stake.

Shares of New York-based BlackRock had dropped 14 percent over the past month on speculation of a possible sale of at least part of that stake to raise capital to offset credit-related write-downs.

A source familiar with the situation told Reuters on Wednesday that Merrill was instead selling its 20 percent stake in Bloomberg LP back to the news and financial data company for about $4.5 billion.

"We are very pleased to announce the reaffirmation of our business partnership with Merrill," BlackRock Chairman and Chief Executive Laurence Fink told an earnings conference call. "Merrill Lynch decided not to sell any of their stake in BlackRock," he said.

'WEIGHTY OVERHANG'

Merrill got the stake in exchange for selling its funds unit to BlackRock in 2006 for $9.5 billion, the biggest purchase yet in the U.S. fund industry. PNC Financial Services Group (PNC.N) owns a 34 percent stake in BlackRock.

Fink also said that BlackRock has extended its global agreement with Merrill to distribute BlackRock funds for an additional four years beyond September 2009 when the pact was originally set to expire.

Merrill's move to keep its stake and extend the distribution relationship helps in "lifting a weighty overhang on the stock," Goldman Sachs wrote in a note to clients.

BlackRock's second-quarter net income rose to $274 million, or $2.05 per share, from $222 million, or $1.69 a share, a year earlier.

After adjusting for compensation plan costs partially funded by Merrill and PNC, earnings were $2.14 per share, the company said. Analysts, on average, had expected $1.97, according to Reuters Estimates.

Assets under management, the main driver of revenue and profit at money managers, rose to $1.43 trillion at the end of June from $1.23 trillion a year earlier and $1.36 trillion at the end of March.

BlackRock said it had net inflows of $24.2 billion in fixed income, equities and alternative investments in the second quarter. Cash management products had net outflows of $4.6 billion toward the end of the period, but that has subsequently been reversed.

New advisory assets, which are long-term portfolio liquidation assignments, totaled $43.6 billion for the quarter. These include the assets managed for Swiss bank UBS AG (UBSN.VX) and the $30 billion of illiquid assets acquired by the U.S. Federal Reserve from Bear Stearns.

BlackRock said it had $64 billion in new business in the current quarter, including $23 billion in long-term products, $8.5 billion in cash management and $32.5 billion in advisory assignments.

"We are seeing many institutions who are still in a need to deleverage, who are still looking for solutions with some problem products," Fink said. "The pipeline has never been more robust," he said.

BlackRock began as a bonds shop 20 years ago under co-founder Fink but it has diversified over the years into equities and hedge funds and competes with Legg Mason (LM.N) and AllianceBernstein (AB.N), among others.

BlackRock shares were up 12.9 percent at $201.95 by late morning on Thursday, pulling back after climbing as high as $214. That contrasted with the S&P Asset Management and Custody Banks index, which was up just 0.1 percent.

(Editing by Brian Moss and Jason Szep)