ETF Units May Bolster Big Banks’ 4Q Earnings

Big banks’ and asset managers’ exchange-traded fund units may provide some of the only bright spots in what may shape up to be a difficult fourth-quarter earnings season.  

Executives have cautioned that gyrating markets, persistent rate hikes and the war in Ukraine will weigh on last quarter’s earnings. Still, one bright spot for the biggest publicly traded ETF issuers—BlackRock Inc., State Street Corp., Invesco LTD. and Charles Schwab Corp.—may be their ETF divisions.  

ETF flows came in at $203 billion in last year’s final quarter, according to ETF.com data, nearly double the third quarter's $105 billion. That should help fourth-quarter profits.  

More profitable ETF arms would be a sharp reversal from the previous quarter, when State Street announced $14 billion in net outflows, and Schwab’s ETF revenue and assets under management declined steeply. ETF inflows at BlackRock’s iShares unit retreated by more than half compared with the third quarter of 2021.   

Banks and asset managers may report rising demand for fixed income funds. Investors are flocking to bonds, seen as safe havens during economic downturns, as recession warnings echo. 

“We're going to see dramatic and large inflows into fixed income over the next year as interest rates rise,” BlackRock President Rob Kapito said on the company’s third-quarter earnings call.   

Fixed income funds brought in $61 billion in the fourth quarter, up almost 13% from the $54 billion in the third quarter, ETF.com data shows.  

Earnings season is largely expected to be dismal, as analysts have downgraded earnings expectations across the board. A report by FactSet shows that fourth-quarter earnings per share estimates fell 6.5% for S&P 500 companies, more than the average decline seen in the past 20 years.  

Mixed Expectations 

Financial firms’ revenue expectations are mixed. BlackRock and Invesco are expected to report revenue declines of 2% and 4%, respectively; State Street may report a 5% increase; and Schwab revenue is expected to be unchanged.  

Lackluster earnings are already taking their tolls on businesses, as New York-based BlackRock announced on Wednesday that it would be slashing nearly 2.5% of its global workforce, around 500 employees.  

“The uncertainty around us makes it more important than ever that we stay ahead of changes in the market and focus on delivering for our clients,” Chief Executive Officer Larry Fink and President Rob Kapito wrote in a staff memo reported on by Bloomberg News. 

BlackRock kicks off the earnings season before the market opens on Friday, Jan. 13.  

Contact Shubham Saharan at [email protected]