Blackrock (BLK) Q2 2016 Earnings

posted in: Earnings Call, Notes | 0

Blackrock (BLK) CFO Gary Shedlin said investors remain hesitant in this uncertain times 

“Clients are struggling to navigate an incredibly difficult investment landscape. Notwithstanding the recent market rally over the last 12 months, many global equity markets were down double-digits and interest rates touched historic lows worldwide. The current macro environment including negative yields in many jurisdictions, Brexit and U.S. election uncertainty is causing clients to defer investment decisions resulting in significant increases in global cash balances, lower active flows, and a shift from equity to fixed income assets.”

Declines in international equity markets hurt the company’s fees

“While the S&P 500 was down only 1% on average year-over-year, many markets linked to our higher fee equity products including emerging markets, Europe, Asia, natural resources and commodities experienced double-digit declines.  This environment is also resulting in lower revenue capture across the asset management industry.”

Brexit has had minimal impact on their business

“More recent market volatility associated with Brexit had a minimal impact on second quarter base fees. While the operational implications of Brexit will evolve over the coming quarters, we are well-positioned versus the industry as a function of our globally diversified manufacturing, distribution and operating platform.”

Blackrock (BLK) CEO Larry Fink said clients are pausing and reflecting on what to do next with their investment portfolios

“Political and macroeconomic uncertainty including Brexit, the upcoming elections in France and the United States, historically low yields and elevated market volatility, regulatory pressure including the DOL, Solvency II, these factors and others are leading clients of all types to pause, as they assess both their own needs and their investment options available for them.  Our pension clients with 7%-plus return expectations are facing an ever-expanding liability gap. Our insurance clients with significant regulatory constraints cannot make their business models work in a zero yield environment. Sovereign wealth funds have been forced to focus on liquidity and funding needs after years of rapid growth, and individual savers are wrestling with a choice of too much risk versus too little return, as they face the prospects of their own underfunded retirement plans.  Clients do not know what to do with their money. They are afraid and they are pulling back, as evidenced by more than $55 trillion in bank deposits sitting in the United States, China, and Japan alone.”

Blackrock (BLK) CEO Larry Fink said he doesn’t see the Fed easing monetary policy and easier than it already is

“I believe the U.S. economy is growing, not as well as we want it to be, but I think we will see a 2% economy this year, and we still have plus or minus, a 5% unemployment rate in this country. So despite all of the headwinds and uncertainties, I don’t see at this time, a Federal Reserve that turns itself into a central bank that has to aggressively ease. And so, it may delay their path towards normalizing of interest rates, but I don’t see any possibility at this moment that they will be forced to going back into an easing mode. I think we’re going to live in this environment of low rate for a long time though.”