The most recent round of quarterly earnings reports, which continues this morning with BlackRock's 9am Q3 earnings and conference call, has already revealed a couple of new bits of information on the state of money market fund managers. Schwab's latest earnings reveal that the company finally took a loss to rid itself of its remaining Whistlejacket SIV holdings, while BNY Mellon's Q3 numbers show that online "portals" and platforms are seeing revenue hurt from lower distribution fee revenue.
A BusinessWire press release entitled "Schwab Reports Third Quarter Revenues up 5% Year-over-Year" says, "The Charles Schwab Corporation announced today that its net income was $124 million for the third quarter of 2010, down 38% from $200 million for the third quarter of 2009. Schwab's third quarter net income was $218 million prior to the inclusion of previously announced charges totaling $94 million after-tax. Those charges relate to the company's decisions to cover the net remaining losses recognized by its money market mutual funds as a result of their investments in a single structured investment vehicle that defaulted in 2008, and to end the sponsorship of its affinity credit card program. For the nine months ended September 30, 2010, the company's net income was $335 million, down 46% from the year-earlier period. The company's year-to-date results also include charges totaling $120 million after-tax relating to the settlement of a civil class action lawsuit involving the Schwab YieldPlus Fund(R), an ultra-short bond fund. The company's year-to-date net income prior to the inclusion of charges totaled $555 million after-tax."
Schwab CFO Joe Martinetto noted, "Our diversified business model enabled us to grow revenues during the third quarter even as interest rates declined somewhat during the period. Although our trading revenue declined by 24% from year-earlier levels as a result of our improved pricing and the environment's effect on client activity, our net interest revenue rose by 31% over the year-earlier total while our net interest margin remained relatively flat. Our asset management and administration fees also showed year-over-year improvement in the third quarter -- for the first time in two years -- through higher client balances in Mutual Fund OneSource and advisory programs such as Schwab Managed Portfolios, as well as further easing in money market fund fee waivers. Overall, our third quarter revenue growth represents the first year-over-year increase since the second quarter of 2008."
The disclosure that Schwab took action to protect its money fund investors from possible losses brings the overall tally of "bailouts" to almost 30 of the approximately 90 managers of money funds. Schwab had never been listed before, because it had been holding a small percentage of Whistlejacket SIV debt in its funds. A number of other funds had been forced to act on defaulted debt to preserve their AAA ratings, but the retail-oriented Schwab funds had no rating to protect. It appears that Schwab allowed the Whistlejacket to stay in the portfolio until recently, when they finally decided to remove the last vestiges of the SIV.
BNY Mellon's release says, "Securities servicing fees totaled $1.5 billion, an increase of 20% year-over-year and 17% sequentially. Both increases reflect the impact of the Acquisitions. Year-over-year results also reflect higher asset servicing revenue as a result of higher market values and new business and higher issuer services revenue from increased depositary receipts, while clearing services revenue was negatively impacted by lower transaction volumes and lower money market related distribution fees. The sequential comparison also reflects higher asset servicing and issuer services revenue, primarily depositary receipts, offset by lower clearing services revenue. Securities lending fee revenue totaled $38 million in the third quarter of 2010 compared with $43 million in the prior year period and $46 million sequentially."
