Wealth management divisions were bright spots in an otherwise rough first quarter for Wall Street’s biggest banks. The units mostly outperformed while the financial institutions as a whole mostly didn’t.
The golden age of financial advice, fueled by fees tied to growing assets, may not last too much longer, however. The Federal Reserve has plans to raise interest rates and to quit buying mortgage-backed and Treasury bonds, and that could spell the end of what analyst Dick Bove calls “nirvana” for the units.
“You’ve had the best of all possible worlds for the wealth management businesses over the last handful of years, but I don’t think it’s going to continue,” said Bove, a senior research analyst at New York-based broker-dealer Odeon Capital Group. “The game is going to change and therefore I would expect over the next few quarters and years you’re going to see tougher environments and lower returns for this business.”
Wall Street struggled in the first quarter of the year, with the S&P 500 down 4.95% in that time, a decline that has yet to ease. Across the board, wealth management units did better than the banks’ other divisions.
At the largest bank in the U.S., JPMorgan Chase, net revenue was $31.6 billion, down 5% year over year. In the firm’s wealth management division, net revenue was up 6% to $4.3 billion.
CEO Jamie Dimon cited the war in Ukraine among the causes for the disappointing performance. “Our focus this quarter remained on helping our clients navigate difficult markets and unpredictable events, which included working with governments to implement economic sanctions of unprecedented complexity,” he said.
Morgan Stanley also saw a drop in net revenue, down 5.73% year over year with wealth management down less than half a percentage point. CEO James Gorman called the results “strong … in the face of market volatility and economic uncertainty,” adding that wealth management “proved resilient.”
Net revenue at San Francisco-based Wells Fargo was down over 5%, but wealth and investment management was up 6% year over year.
Citigroup net revenues were down 2.5% year over year while the firm’s personal banking and wealth management performed better with revenues down a more reasonable 1.5%.
Bank of America actually saw revenue growth of 1.8% in the first quarter as compared with the same period last year. Merrill Lynch’s wealth management led the charge with 10.2% revenue growth year over year for a record revenue of $5.5 billion.
At Goldman Sachs, consumer and wealth management net revenues were $1.62 billion, 19% higher than the first quarter of 2021 and a bright spot compared with an overall net revenue drop of 27% year over year.
“You can see from our earnings, the growth of the wealth business year over year,” Goldman CEO David Solomon told investors on the firm’s earnings call. “We continue to be focused on that opportunity. And I’d just highlight that that’s a process that takes time. … We see it as a very big opportunity. I think we have an aspirational brand in the wealth space.”
The strength of wealth management at these financial institutions is not a product of dumb luck. Wall Street has invested heavily in it, starting with Bank of America’s purchase of Merrill Lynch 14 years ago during the height of the financial crisis. Since then, Morgan Stanley bought E-Trade and Eaton Vance and Goldman Sachs acquired United Capital, which is now Goldman Sachs Personal Financial Management.