How bad will the fourth quarter earnings season for asset managers be? The WSJ Fund Track predicts
that it could be the "worst ever" for the industry. The litany of reasons should be familiar to everyone in the fund industry by now: stock prices are down, redemptions are up, there is pressure on fees due to competition from ETFs and index funds. In short, margins are stressed.
Stock analysts are noticing, and they are not seeing any quick turnaround.
Public asset managers such as Janus Capital Group and Franklin Resources are taking the brunt of the revisions, but others including T. Rowe Price Group and BlackRock Inc. also draw notice in the article.
Robert Lee, Keefe, Bruyette & Woods analyst released a report on the situation Tuesday from which the paper culled a duly alarmist quote:
"We believe the fourth quarter is likely to go down in the record books as the sharpest one-quarter decline in operating earnings for most asset managers ..."
And 2009 may not be better writes Friedman Billings Ramsey analyst Matt Snowling:
"Sharply lower managed-asset levels and the resulting drop in revenues will drive operating margins significantly lower, as expense reductions fail to offset the impact on the top line."
Janus is one firm in the analysts cross-hairs. Lee foresees Janus reporting a fourth quarter loss of four cents per share, something that is almost unheard of in the asset management business. Before the meltdown last quarter he had expected Janus to earn 18 cents. He also cut his 2009 year forecast to 59 cents from 75 cents due to pressure on flows.
Meanwhile, Credit Suisse Group analyst Craig Siegenthaler, pointed clients to the Janus' disappearing stars. He wrote that:
"[Janus] displayed the largest deterioration in relative fund performance over the past month, as the percentage of assets under management rated four or five stars declined from 62% to 47%. This level is still 13% above the average asset manager; however, Janus' levels have declined significantly since August due to weaker fund performance at some of its large flagship funds.
The paper also noted Siegenthaler's prediction that Franklin will be forced to "significantly reduce" its headcount or face a squeeze on its margins. The San Mateo, California-based fund firm reported an 18 percent drop in its AUM during the fourth quarter, ending the year with $416 billion in AUM.
Sean Hanna, Editor in Chief
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