SunTrust brokerage revenue slips even as AUM takes off

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SunTrust's brokerage business slowed in the second quarter, according to the bank's earnings results released on Friday.

Second-quarter revenue from brokerage services slipped 3% to $70 million from $72 million in the same quarter a year ago. The decrease was a result of reduced client transactional activity, the bank explained in its earnings release.
For the first six months of the year, the brokerage unit generated $139 million in revenue, off 1% from $141 million from a year earlier.

The slowdown comes as the bank's brokerage unit reported a strong increase in assets under management. At the end of the second quarter, the unit posted $14.8 billion in brokerage managed assets, up a notable 26% year-over-year.

Like other financial institutions, the bank has been shifting from commission-based to fee-based, advisory business, which puts short-term pressure on revenue. "While this is a negative for near-term retail investment income growth, it is positive for clients and the long-term health of our business," the bank's CFO Aleem Gillani explained during an earnings call earlier this year.

The bank's trust and investment management business, meanwhile, appeared to have turned a corner after a protracted period of falling assets and overall weakness. The business generated $76 million in second-quarter revenue, up 1% year-over-year. It was also up for the first half of 2017, bringing in $151 million, a modest 1% increase from the first half of 2016.

At the end of the second quarter, the bank's trust and institutional managed assets totaled $41.6 billion, up 3% year-over-year, according to the earnings release.

Gillani said the bank was pleased with the improved momentum within the wealth businesses. "Wealth management-related revenue is beginning to stabilize and grow slightly," he said during the earnings call, adding that it reflected the bank's "continued improvement in capabilities" and ability to "attract and retain top talent."

The bank has been successful in onboarding teams and acquiring talent, technology and capacity as well as adding clients, said SunTrust's CEO William Rogers. "Private wealth management is probably the place we've been investing in a little bit more in the last year," he told analysts on the call.

In April, the bank snatched a top executive from BBVA Compass to lead the bank's newly established wealth management offices in Houston and Dallas. The executive was joined by seven other wealth management professionals.

The bank has also made strides to improve what it refers to as "the client experience." In April, it integrated its mortgage banking business with the consumer and private wealth management business. The move would help create a "more consistent, integrated and improved experience for clients across all consumer products and services," Gillani said.

Overall, SunTrust earned $505 million, or $1.03 per common diluted share, in the second quarter, compared with $475 million, or 94 cents per common diluted share, in the same quarter the prior year.

"Our strong performance this quarter reflects our commitment to deliver against our strategy," said Rogers. "We continued to realize benefits from our consistent focus on optimizing our business mix and investing in growth, made further progress in improving our efficiency, and significantly increased our capital returns to shareholders."

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Earnings William Rogers, Jr Aleem Gillani SunTrust