BlackRock Profit Doubles After Fund Manager Acquisition

BlackRock Inc. said second-quarter profit rose 98 percent as the acquisition of Barclays Global Investors boosted assets and fees.

Net income rose to $432 million, or $2.21 a share, from $218 million, or $1.59 a share, a year earlier, the New York- based firm said today in a statement. Excluding costs to integrate BGI and certain compensation expenses, earnings of $2.37 a share beat the $2.30 estimate of 11 analysts surveyed by Bloomberg.

Clients withdrew a net $30.4 billion in the quarter as they reassessed investments following the BGI deal, contributing to a 6.3 percent decline in assets under management. Chief Executive Officer Laurence D. Fink, who built BlackRock from a fixed- income firm into the world’s largest asset manager by adding the biggest lineup of exchange-traded funds, last week reshuffled management and set up three regional units to help integrate the new business.

“The long-term flows improved but the churn got worse,” Jeffrey Hopson, an analyst with Stifel Nicolaus & Co. Inc. in St. Louis, said in an interview. “The churn will run its course, but I would like to see it run its course sooner rather than later.” Hopson expected BlackRock to earn $2.40 a share, excluding certain one-time items.

BlackRock had $33.9 billion in withdrawals from quantitative funds and as clients reassessed their investments after the merger. Cash funds lost $24.9 billion. Customers added $28.4 billion to long-term products and the advisory business.

Market Declines

The withdrawals and stock market declines in the quarter reduced assets under management to $3.15 trillion, from $3.36 trillion at the end of March. Equity market declines and foreign exchange movements erased $194.1 billion during the quarter, accounting for more than 90 percent of the drop in managed assets.

BlackRock’s has declined 36 percent in New York Stock Exchange composite trading this year, making it the worst performer in the 202-member Russell 1000 Financial Service Index, which is down 1.4 percent. The stock surged 73 percent in 2009, four times the rate of index, helped by news of the BGI purchase.

“Going into the merger we knew that some clients would have to address concentration issues and that the active quantitative style was under stress industrywide,” Fink said in today’s statement. “As expected, these two issues continued to drive outflows, and are expected to do so for at least another quarter.”

Reshuffling Management

BlackRock last week named Rich Kushel as head of portfolio management and Charles Hallac as chief operating officer, and created three regional units for the Americas, Asia-Pacific, as well as Europe, the Middle East and Africa. James Charrington, 58, will lead the EMEA region and Rohit Bhagat, 46, will oversee the Asia Pacific unit.

Investors in the U.S. deposited about $50 billion into stock and bond mutual funds in the quarter ending June 30, with most of that going into fixed-income funds, preliminary data from the Investment Company Institute in Washington show. Exchange-traded funds pulled in $30.5 billion during the quarter, according to Morningstar Inc. in Chicago.

BlackRock, co-founded in 1988 by Fink, began as a fixed- income firm and has expanded through a series of acquisitions. In 2005, BlackRock bought State Street Research & Management to add more stock, real estate and hedge funds. In 2006, it expanded its equity business with the purchase of Merrill Lynch & Co.’s money-management unit. In 2008, BlackRock acquired a division of Quellos Group LLC to add hedge-fund assets. The $15.2 billion purchase of BGI, the biggest seller of index- tracking ETFs, was its largest takeover.

To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net.

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