Invesco Ltd. (IVZ), owner of the Invesco, Perpetual and PowerShares funds, said first-quarter profit fell 15 percent after the company was fined by U.K. regulators for breaking rules on limiting risk.
Net income declined to $187.8 million, or 43 cents a share, from $222.2 million, or 49 cents, a year earlier, Atlanta-based Invesco said today in a statement. Excluding certain items such as the U.K. penalty, earnings of 60 cents a share beat the average estimate of 55 cents in a Bloomberg survey of 19 analysts.
The 18.6 million pound ($31.4 million) fine from the Financial Conduct Authority, disclosed this week, is the second blow to Invesco’s U.K. business in six months. The departure of manager Neil Woodford, one of Britain’s best-known retail fund managers, has spurred client defections from the London-based Perpetual unit for two consecutive quarters. Because of deposits in other businesses and higher equity markets, Invesco’s assets rose 1.1 percent in the quarter to a record $787 billion.
“People will be focused on management’s commentary” regarding client withdrawals related to Woodford’s departure, Luke Montgomery, an analyst at Sanford C. Bernstein & Co. in New York, said in an interview before results were announced.
Invesco rose 2.3 percent to $36.02 in New York trading. The shares have declined 1 percent this year, compared with the 5.5 percent drop by Standard & Poor’s 18-company index for asset managers and custody banks.
The Standard & Poor’s 500 Index of big U.S. stocks advanced 1.3 percent during the quarter and 19 percent in the year ended March 31. Invesco’s assets climbed 8 percent from a year ago.
Higher assets boosted revenue by 14 percent to $1.27 billion as investment management fees jumped by the same proportion. Expenses climbed 21 percent to $1.03 billion.
The U.K. penalty and related legal fees decreased earnings by 7 cents a share. Additional costs connected to building closures and job cuts reduced net income by 9 cents a share.
“We’re feeling very good despite this one small localized issue in the U.K.,” Chief Financial Officer Loren Starr said in an interview.
Invesco announced in October that Woodford, a 25-year veteran of the firm, would leave in late April. The U.K. equity income strategy he ran had $3.4 billion in withdrawals in the first quarter. St. James’s Place Plc., a large distributor in the U.K., withdrew $13.1 billion in April.
St. James’s Place said it will bring about half of that to Woodford Investment Management, a new unit of Oakley Capital Management Ltd.
Woodford, 54, oversaw about 33 billion pounds when his plans to leave were announced, including the 14 billion pound Invesco Perpetual High Income Fund. (INVHIIA) The fund had dropped to 13.1 billion pounds as of March 31, according to data compiled by Bloomberg.
Clients withdrew a net $900 million from Invesco in the quarter. Excluding money-market funds, customers added $5.2 billion in deposits, including $3.2 billion into actively-managed products.
The FCA, which announced the fine on April 28, focused its investigation on a four-year period to November 2012 and identified violations that led to 5 million pounds in losses.
Invesco Perpetual broke rules on limiting risk 33 times, didn’t communicate properly with investors about derivatives, didn’t record trades on time and failed to monitor whether trades were allocated fairly among funds, the agency said.
“The small number of impacted funds were fully reimbursed,” Invesco Perpetual Chief Executive Officer Mark Armour said in an e-mail after the penalty was disclosed. “In this instance, we clearly fell short of the high standards we consistently strive to deliver.”
BlackRock Inc. (BLK), the world’s largest asset manager, said on April 17 that its first-quarter net income climbed 20 percent to $756 million. Investors deposited a net $27 billion.
T. Rowe Price Group Inc. said April 24 its first-quarter net income rose 25 percent to $301.1. million after clients added $8.8 billion in net deposits, mostly from retirement savers.
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