Oppenheimer Swings to Profit on Tax and Hedge Fund Benefits
Oppenheimer Holdings, the publicly listed financial company controlled by the family of its chairman and chief executive “Bud” Lowenthal, said corporate tax reform and asset management incentive fees helped it swivel to a $21 million profit in the fourth quarter from a loss of almost $2 million a year earlier.
The private client division, whose 1,100 brokers generated 63% of the company’s revenue during the quarter, recorded a 4% drop in retail commissions to $52.6 million. But Oppenheimer’s total quarterly revenue of $265 million in the fourth quarter was up 21% from the year-earlier period.
The total included $71.8 million of advisory revenue, up 54% from a year earlier, due to higher assets under management and $27.3 million of incentive fees collected on hedge funds it manages for exceeding preset “benchmark” returns over the previous year, the company said.
Oppenheimer also booked almost $24 million of fees on client cash deposits in bank accounts administered by the firm, more than double the total from the year-earlier quarter as a result of rising interest rates. The New York-based company changed its advisory fee booking policies at the beginning of 2017 so that its private client group reaps 90% of the gains (up from 77.5%), helping to beef up some executive compensation, with the remainder allocated to its asset management business segment.
The company’s expenses rose in part because of a 54% gain in its shares during the fourth quarter, leading to what Lowenthal termed in a press release “a significant increase in compensation costs from the Oppenheimer Stock Appreciation Rights Plan” of $7.6 million. Total compensation and related expenses of $173.5 million during the fourth quarter of 2017 rose 14.0% from the fourth quarter of 2016.
Opco also realized a $9 million after-tax benefit during the fourth quarter of 2017, primarily reflecting re-measured deferred tax assets and liabilities as a result of the new tax law signed by President Trump in late December. On a pretax basis, Oppenheimer’s fourth-quarter net income from continuing operations of $16.6 million compared with a pretax loss from continuing operations of $7.5 million for the fourth quarter of 2016.
Opco ended 2017 with 1,107 brokers, down a net 10 since the end of September and 51 fewer than at the end of 2016.
The firm, which employs about 3,000 people in 93 offices, has about 150 fewer brokers than two years ago, a result of what it has said in regulatory reports is its “attention to adviser productivity leading to attrition of less productive financial advisers” along with retirements and normal attrition. A veteran producer in Opco’s Los Angeles office left with three members of his team last week to open a West Coast outlet for Memphis-based Wunderlich Securities.