"While title insurance operations remained profitable, a transitory real estate and mortgage market downturn halted the fast-paced earnings progress of the past three years," says Old Republic (ORI -3.6%), leading off its Q1 earnings report.
General insurance net premiums earned of $663.2M up 9.1% Y/Y. Net investment income of $66.1M up 6.1%. Benefit and claim costs of $500.9M up 12.2%. Pretax operating income of $64.6M falls 6.2%.
Title insurance net premiums earned of $393.8M falls 14.5% Y/Y. Net investment income of $7.1M up 9%. Pretax operating income of $4.7M falls 77.8%.
Mortgage insurance and consumer credit run-off business post pretax operating income of $19.5M vs. a $20.2M loss one year ago.
A check of the mortgage REITs (REM +0.1%) finds not a lot going on stock price-wise following the first Q1 earnings reports from the sector this week (CYS Investments and Hatteras). As expected, book values grew and prepayments remained at a low level.
Perhaps unexpected was a good deal of caution from CYS management about mortgage prices - right now, it's finding better value in Treasurys, and awaits a pullback in MBS prices before boosting those holdings. "The mortgage market is a little kid playing with matches," said CEO Kevin Grant on the earnings call (transcript). "We just don't know when everybody's fingers are going to get burnt. The traders that play in this market, they know this and they know they are playing with matches."
Amid the low supply of MBS out there, Hatteras (HTS +0.1%) management on its call (transcript) says it now has 10 originators delivering wholesale product to the company covering more than half of monthly cash flow needs. Up next is expansion into jumbo ARMs.
"Bonuses up, profits down. Not a headline we would have chosen," said Barclays (BCS) Chairman Sir David Walker at the bank's heated annual meeting today. The contentious action comes following the decision to boost the bonus pool by 10% last year despite a fall in profits. Walker contends to increases were necessary to prevent an exodus of key investment bank staff.
"Our business was attacked very aggressively by competitors, particularly in the US,” he said, noting one case of a U.S. bond trading desk where two-thirds of the staff and two co-heads threatened to leave.
"We are paying for Manchester United but we are getting Colchester United," says one small shareholder, summing up the feeling in Royal Festival Hall today.
Investment advisory revenue of $826.4M gained $123.5M from a year ago, with average AUM up 17% to $100.2B to $711.4B. Market appreciation and income helped, but there were also net cash inflows of $8.8B.
78% of mutual funds outperformed comparable Lipper averages on a total return basis for the 3-year period ending on March 31. 85% outperformed over a 10-year period, 71% over one year.
Operating expenses of $505.5M gained $62.4M from a year ago, with compensation and related costs up $39.8M. Headcount of 5,692 up about 5%.
The BlackRock (BLK) Diversified Income Portfolio will be about 70% invested in iShares ETFs and available on May 1 exclusively to those with Fidelity brokerage accounts. Under the deal, Fidelity will serve as the managed account's investment adviser and BlackRock will be portfolio strategist. Annual advisory fees will be between 0.55% and 1.1% depending on the size of the investment.
Mutual funds, MLPs, and other investment vehicles will make up about 30% of the fund's investments.
Last year, Fidelity boosted the number of BlackRock iShares ETFs to 65 from 30, and introduced its own first full slate of sector ETFs, with BlackRock as sub-advisor. Since Fidelity increased its iShares offerings, investments in iShares on its platform are up 86%.
Economic net income of $630.3M falls from $647.7M one year ago, but distributable earnings of $446.8M are up 54% Y/Y as buoyant stock markets made it a good time to harvest. IPOs in Q1: Pets at Home, Santander Consumer USA. Share sales in companies already public: Jazz Pharma and Nielsen. Realized carried interest of $168.8M nearly doubles from last year's $88.1M.
The carrying value of the P-E portfolio rose 4.5% in Q1 vs. 5.9% one year ago (Blackstone's rose 7% in 2014 Q1).
"Any time a large financial institution starts promising regular earnings increases, you're going to have trouble," Warren Buffett famously said in 2010, explaining why he dumped stakes in Freddie Mac (FMCC) and Fannie Mae (FNMA) many years before the housing bust.
As for whether Berkshire Hathaway (BRK.A, BRK.B) has any interest in the GSEs at this point, the answer is "no," says Buffett in a Bloomberg interview. Buffett does though, see a role for government in housing finance. "The 30-year fixed-rate mortgage is very good for the American public and I think that you will need government participation in some way to bring the costs down.”