How Can the Firms that Manage My Stock Portfolio Declare Record Earnings When the Returns of My Portfolio Stink?
August 12, 2006 -
In June, 2006, www.marketwatch.com (an online financial news service) reported that global investment firms Bear Stearns, Goldman Sachs, Lehman Brothers, Morgan Stanley and Merrill Lynch all declared double digit profit increases in the second quarter of 2006. In fact, upon closer inspection, this statement understated how profitable some of these firms really were. Morgan Stanley reported profits that more than doubled, while pre-tax income from their retail brokerage unit rose 33% and their asset management income rose 28%. Merrill Lynch reported that 2nd quarter 2006 profits rose by 44% while asset management revenue rose 24% and commission revenue rose by a hefty 27%. Bear Stearns reported that 2nd quarter profit rose by 81% while their private client services revenue rose by a rosy 22% due to increased management fees and commissions. And of all these windfalls of profits, most of the executives of these investment firms paid themselves hefty, fat portions.
Now we know at SmartKnowledgeU™, from anecdotal stories, that most people who had individual investment portfolios being managed by these firms were not happy with their returns in the second quarter 2006. In fact, many of the people we spoke to lost substantial amounts of money during this quarter. So how could these same firms be declaring record profits? Read more …
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