By Aaron Pressman
BOSTON (Reuters) - BlackRock Inc, the world's largest asset manager, reported a big jump in fourth-quarter profit and revenue, topping analysts' estimates, aided by the global stock market rally.
With markets on an upswing, the $3.6 trillion behemoth created when Chief Executive Laurence Fink bought Barclays's investment unit for $15 billion just over a year ago finally appears to be paying off for investors.
BlackRock attracted a net inflow of $23.9 billion from clients in the quarter, excluding merger-related withdrawals. Its iShares exchange-traded fund unit grabbed $13.4 billion. Withdrawals related to the merger totaled $38.7 billion.
The results reflected solid investment performance and big inflows for iShares, Nomura analyst Glenn Schorr said. "The net new business pipeline is strong and BlackRock showed progress in the retail, defined contribution, and multi-asset spaces," Schorr said in an initial report on the earnings.
Anticipating improving results, the shares of New York-based BlackRock have gained 16 percent over the past three months, closing at $193.58 on the New York Stock Exchange on Monday. The biggest upsurge followed Fink's comments at a conference last month that fourth-quarter profits would be "very strong."
Still, the stock remains well below $226.74, its close on December 1, 2009, when the deal for Barclays Global Investors was completed. In contrast to the stock's 15 percent decline since then, the Standard & Poor's 500 Index has gained 16 percent.
Fourth-quarter earnings, excluding certain items, totaled $670 million, or $3.42 per share, up 77 percent from $379 million, or $2.39 per share, a year earlier. Analysts had expected adjusted earnings of $2.90 per share, according to Thomson I/B/E/S.
MARGINS IN FOCUS
It has taken a while for investors to catch on to the merits of the Barclays deal. BlackRock's operating margin excluding some items has been lower than expected when the deal was in process in 2009. The margin hit 40.7 percent in the fourth quarter but for all of 2010 was 39.3 percent, less than the 40 percent or more investors expected.
Fink has said he is plowing money back into the firm and warned investors in October that margins were unlikely to reach the 40 percent level in 2011. One key spending project, to allow BlackRock's managers and customers to cross trades on a private network known as a dark pool, is expected to begin operations later this year.
The firm's indexed equities unit has also been hurt by the drop-off in securities lending since the financial crisis. And low interest rates curtailed income from the firm's short-term cash management accounts.
Some investors have also been concerned with the amount of merger-related withdrawals, which totaled $121 billion, or 7 percent of the acquired assets, in 2010, according to BlackRock.
Many withdrawals stemmed from clients who had accounts with both firms before the merger and felt uncomfortable leaving the total with one firm.
"We believe merger-related outflows are largely behind us," Fink said in a statement on Tuesday.
A single client withdrew almost $24 billion from an indexed account in the fourth quarter. BlackRock had $13.6 billion of pending further withdrawals at the end of the quarter.
Assets under management totaled $3.56 trillion at the end of the fourth quarter, up 6 percent from $3.35 trillion a year earlier and gaining 3 percent during the quarter.
Revenue jumped 61 percent to $2.49 billion. Strong results at some of BlackRock's hedge funds helped boost high-margin performance fee revenue to $326 million from $125 million a year ago. Revenue at BlackRock Solutions, the firm's risk management outsourcing unit, gained 22 percent to $132 million.
"People can see that they've been able to execute and integrate all these platforms now," Elizabeth Bramwell, manager of the Sentinel Growth Leaders fund, which owns BlackRock shares, said before the earnings were released. "They have the ability to offer a diversity of products and geographic diversity that's just unparalleled."
Analysts who track BlackRock follow the firm's preferred measure of profitability, which excludes costs from merger integrations and closed-end fund launches. Costs from compensation programs related to Bank of America Corp's Merrill Lynch and PNC Financial Services Group Inc, both still shareholders in the firm, are also excluded.
Using generally accepted accounting principles, BlackRock earned $657 million, or $3.35 per share, in the fourth quarter, up from $256 million, or $1.62 per share, a year earlier.
(Reporting by Aaron Pressman; editing by John Wallace)
