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BlackRock Says Withdrawals to Weigh on Asset Growth

BlackRock Chief Executive Officer Laurence D. Fink
BlackRock Chief Executive Officer Laurence D. Fink said last month the New York company benefited from “very strong” deposits during the quarter as it integrated the former Barclays Plc unit. Photographer: Daniel Acker/Bloomberg

Oct. 20 (Bloomberg) -- BlackRock Inc., the world’s biggest money manager, said growth in assets under management will be curbed into next year by redemptions related to its acquisition of Barclays Global Investors.

BlackRock, which more than doubled the amount it manages with the Dec. 1 acquisition of BGI, fell as much as 3.8 percent in New York after saying clients who previously invested with both firms withdrew $34.4 billion in third quarter and may continue to pull out money in the next two quarters. About half of that amount, or $17 billion, was from one pension fund.

Assets under management rose 9.4 percent to $3.45 trillion from the previous quarter, helped by the best September for U.S. stocks in 71 years and $15.6 billion in net deposits, mostly into fixed-income funds that track indexes. Chief Executive Officer Laurence D. Fink said selling of dollar-based assets may hurt asset growth into next year as clients seek to invest in stronger, higher-yielding currencies.

“People thought the cross-selling opportunities would be immediate and there’d be a huge ramp-up in cross-selling this year and it didn’t materialize,” said Greggory Warren, equity analyst at Chicago-based Morningstar Inc.

Net income rose 74 percent in the quarter, to $551 million, or $2.83 a share, from $317 million, or $2.27, a year earlier, the New York-based company said today in a statement. Excluding certain one-time costs, BlackRock earned $2.75 a share, compared with the $2.46 average estimate of 12 analysts surveyed by Bloomberg.

‘Distinct Turn’

Excluding merger-related withdrawals, BlackRock won $50.1 billion in new assets. Fink said today in a conference call for analysts and investors that he is “very excited” about the deposits into BlackRock’s funds as the firm is ahead of its schedule for integrating the unit acquired from Barclays Plc.

“We’ve seen a distinct turn from the first half of the year,” Jeffrey Hopson, an analyst with Stifel Nicolaus & Co. in St. Louis, said in an interview. Hopson expected BlackRock to earn $2.39 a share, excluding some costs, and rates the stock “buy.”

Excluding merger-related withdrawals, BlackRock gathered $25.9 billion in deposits into its equity index products during the quarter. Investors removed $4.3 billion from actively managed stock funds and merger-related withdrawals were $30.5 billion during the quarter. Fixed-income funds attracted $26.7 billion, mainly into index products, while merger-related withdrawals were $3.1 billion.

September Gain

Revenue rose 84 percent to $2.09 billion, driven by a near doubling of fees that BlackRock earns for managing assets and performance fees for beating certain benchmarks. Expenses rose 77 percent to $1.39 billion, as compensation and administrative costs increased.

BlackRock declined $5.12, or 2.9 percent, to $169.51 at 4:15 p.m. in New York Stock Exchange composite trading, bringing losses this year to 27 percent. The 201-member Russell 1000 Financial Services Index rose 1.2 percent and is up 2.4 percent since the start of the year.

BlackRock had gained 16 percent through yesterday since Sept. 14, when Fink said the firm was seeing “very strong” client deposits.

“A lot of the good news that came out in today’s results was already baked into the stock,” said Morningstar’s Warren. “The stock got ahead of itself.”

BlackRock was co-founded by Fink in 1988 as a fixed-income firm and has expanded through a series of acquisitions.

Foreclosure Freeze

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, the firm acquired a division of Quellos Group LLC to add hedge-fund assets. The Dec. 1 purchase of BGI was its largest takeover.

BlackRock, the biggest manager of fixed-income assets in the world, is part of a group of investors seeking to force Bank of America Corp. to buy back bad home loans packaged into securities. Pacific Investment Management Co. and the Federal Reserve Bank of New York have joined BlackRock in pushing for relief following a foreclosure freeze this past month.

BlackRock’s most important job is to look out for investors who bought mortgage securities, Fink said today. He declined to comment on BlackRock’s involvement in asking lenders to repurchase bad loans.

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

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net.

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