It was not a great day for US financials as two venerable institutions who share in the history of Merrill Lynch reported downbeat first-quarter earnings.
One was the world's biggest investor, BlackRock (NYSE:BLK), and the other at one time the world's third-biggest company, Bank of America (NYSE:BAC).
For BlackRock, seen as a barometer of economic performance, its numbers caused a fair amount of upset in the market, as it recorded a one percent reduction in assets under management over a year and profits slumping by a fifth in the first quarter of 2016.
But for a company which started out in 1988 primarily to give institutional clients asset management services with a risk management perspective but ended up branching out into risk-taking active fund management, it was especially disorientating.
BlackRock was punished by the dramatic fluctuations in financial markets at the start of 2016 which may have made investors wish they had entrusted their cash with a passive index manager instead of a stock picker like this.
The group managed to bring in $36bn in new client money, including nearly $11bn from institutions seeking to beat the market with active investments, the fall in global stock markets in January and February took their toll. Performance fees from institutions plunged by two-thirds to $34mln.
BlackRock's customers pulled nearly $18bn out of equities this year and then ploughed a more generous $52bn into fixed income products. But it was retail where some of the biggest panic was seen, as less sophisticated investors decided to withdraw more money than they gave BlackRock to invest.
For example, BlackRock's iShares exchange-traded funds business, which allows retail investors to passively track other markets, took in $24.3bn in new money in the quarter, down from $35.5bn a year earlier.
Meanwhile, Bank of America suffered a 13% drop in first-quarter profit.
However, the second-largest bank in the United States behind JP Morgan, BoA saw its loan book mushroom while expense cuts encouraged investors that better times may come soon.
In the first quarter, revenue at the bank run by Chairman and CEO Brian Moynihan slipped 6.7% to $19.51 billion, falling short of the amount expected by analysts. Revenue fell or remained flat in three of the bank’s four main operating units.
BoA reported a profit of $2.68 billion, or 21 cents a share, down from $3.1 billion a year ago. The results were slightly better than the 20 cents a share expected by analysts polled by Thomson Reuters.
Bank executives attributed some of the profit and revenue weakness to low long-term interest rates. Those rates, including the 10-year Treasury yield, slumped during the first three months of the year as concerns about an economic slowdown made inflation and future Federal Reserve rate increases less likely.
So while BlackRock suffered from the fluctuation in markets and migration from equities to bonds, BoA it would seem suffered from the on-going low-rate environment which hurts most banks.
But one thing they both have had to contend with is the ever-growing crusade of regulation of financial services. This burden is set to continue and eats into anyone's balance sheet.
So it was some relief that markets looked ahead of the numbers. BlackRock shares closed up 1.9% at $354.91, while BoA shares ended up 2.54% at $14.14.
Remarkably, BlackRock which grew in stature over the past 30 years was the one institution which the US government contracted to help clean up after the financial meltdown of 2008 which cost Lehman Brothers its very existence. According to Vanity Fair, the financial establishment in Washington and on
Wall Street believed BlackRock was the best choice for the job.
And what do BoA and BlackRock have in common? In September 2006, BlackRock merged with Merrill Lynch Investment Managers, while BoA merged with the remnant of Merrill in 2008 at the height of the financial crisis and made Bank of America the world's largest wealth management corporation.
Small world isn't it?