Daily Brief: BlackRock’s 9.5 Trillion Haul Is Good, But It’s Not Good Enough For Investors

Daily Brief: BlackRock’s 9.5 Trillion Haul Is Good, But It’s Not Good Enough For Investors

over 2 years ago3 mins

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BlackRock’s quarterly results came in ahead of expectations on Wednesday, as the world’s biggest investment firm continues to take good care of investors’ pride and joy.

What does this mean?

The amount of money BlackRock looks after – a.k.a. assets under management (AUM) – hit a record $9.5 trillion last quarter, thanks to buoyant markets and the $81 billion worth of new client money invested into its funds. And since the company makes most of its money from the fees it charges on that AUM, its profit saw a better-than-expected 14% jump last quarter compared to the same period last year. Top work, BlackRock: that makes this the eighth quarter in a row where its profit has come in above expectations.

BlackRock earnings

Why should I care?

For markets: BlackRock’s best isn’t good enough.

An investment firm’s AUM can grow for one of two reasons: a rise in the value of its investments or a fresh influx of client cash. The former is much more dependent on financial market movements and, in turn, much more unpredictable. The latter is considered a much more reliable source of growth: new cash suggests investment firms are outperforming both their competitors and the market at large, which should attract even more business. But while BlackRock did bank $81 billion, that was 30% less than investors were expecting – which might be why they sent its shares down on Wednesday.

BlackRock stock
Source: Google Finance

The bigger picture: China’s stance isn’t going unnoticed.

BlackRock might also be riding high since getting the okay to operate as a private wealth manager in China, as well as becoming the first overseas firm to win approval to launch an independent investment fund business in the country. It might want to start by, uh, selling all its Chinese tech stocks: that’s what the world-renowned ARK Investment Management has been doing at record pace as the Chinese government intensifies its crackdown on the sector.

Keep reading for our next story...

Bank Of America Reported Lackluster Results

BoA image

So much for a post-pandemic blowout: Bank of America (BoA) – the second-largest US bank by assets – announced disappointing results on Wednesday.

What does this mean?

BoA’s second-quarter revenue fell by a higher-than-expected 4% compared to the same period last year. The culprit was a major drop in the bank’s lending revenue, which boiled down to a couple of problems: rock-bottom interest rates that reduced the amount of interest the bank made from its loans, and stimulus check-flush customers who were borrowing less money.

Still, BoA can’t be too irked with the government support programs: a lot of customers wouldn’t have been able to pay their loans back at all if not for them. And now that the biggest risks are in the rear-view, BoA felt confident enough to release cash it had set aside in case pandemic-hit borrowers couldn’t repay their loans, adding a tidy $2 billion to its bottom line.

Less whiplash

Why should I care?

For markets: BoA is the rule, not the exception.

Investors sold off BoA’s shares on the back of the update, but at least the bank can take some comfort knowing that it isn’t alone. Both Citigroup and Wells Fargo admitted on Wednesday that their lending businesses took a knock last quarter: they posted 3% and 12% drops respectively in the total value of their loans compared to the same time last year.

Share prices
Source: The Wall Street Journal

Zooming out: A new borrower to the rescue.

Maybe all BoA needs is a new kind of borrower – like, say, weed companies. The drug’s still illegal on the federal level, which means they’ve been locked out of the US banking system up to now. But that could be about to change, with lawmakers unveiling a bill proposing nationwide marijuana legalization on Wednesday. If the bill ever becomes law, banks will finally be able to offer cannabis companies bank accounts and – you guessed it – loans.

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