Alex. Brown 3rd-quarter earnings fell

October 19, 1994|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer

Alex. Brown Inc. said yesterday that its third-quarter earnings fell 13 percent, a showing that slightly exceeded Wall Street's expectations and pleased the leaders of Maryland's oldest and biggest investment banking firm.

The company said it earned $13.3 million on revenue of $145.5 million during the three months that ended Sept. 30. Alex. Brown's earnings per share -- the key measure underlying the price of its stock -- fell only 8 percent, to 87 cents, because an ongoing stock repurchase program means there are fewer shares outstanding than there were last year.

Alex. Brown's stock yesterday advanced 50 cents to close at $25.625.

"I can't deny they were down from a year ago, and I can't deny they were down for the third quarter in a row, but there was good balance there," said Perrin Long, an independent securities analyst who follows brokerage firms.

Chief executive A. B. "Buzzy" Krongard said last week that analysts who follow Brown had pegged likely earnings with estimates ranging from 65 cents to 80 cents a share. A survey released Saturday put the mean estimate at 86 cents, skewed by one analyst who thought Brown would earn $1 a share.

The company earned $15.3 million, or 95 cents a share, in last year's third quarter.

Brown's results are stronger than several bigger Wall Street firms. Kidder Peabody & Co. was sold to PaineWebber Group Inc. this week because of huge losses on mortgage bond trading, Salomon Inc. said it lost $100 million for the quarter, and Merrill Lynch & Co. and Smith Barney Inc. reported much larger earnings declines than Brown.

"The common thread is heavy principal fixed-income trading," Mr. Long said. "To be a player in fixed-income trading, you have to have big inventories. When interest rates go up, the value of your inventory declines, and interest expense to carry the inventory has risen."

Revenues from Brown's trading of stocks and bonds for its own account fell 8 percent. Mr. Krongard said Brown has a much smaller commitment to this business than many large New York firms, which has been a good thing this year.

"We had a strong quarter in advisory and other revenues," said Beverly L. Wright, Alex. Brown's chief financial officer. "Those tend to be less linked to other [market] factors."

Brown was hurt more by a big drop in its biggest business, the underwriting of public stock and bond offerings. Revenue from investment banking fell 12 percent to $46 million, reflecting an industrywide decline. Ms. Wright said Brown expects this performance to be much stronger than other investment banks' once results for all industry firms become public.

On the plus side, Brown's advisory fees for money management grew 43 percent to $12.4 million.

Commission revenues rose 11 percent to $33.7 million. Interest and dividend revenues rose 50 percent to $18.6 million, reflecting both higher interest rates and clients' growing willingness to use margin borrowing to shoot for higher investment returns, Ms. Wright said.

Alex. Brown Inc. ... ... ... Ticker ... ... ... Yesterdsay

Baltimore .. .. .. .. .. ... Symbol ... ... ... Cls. ... ... Chg.

.. .. .. .. .. .. .. ... ... AB ... ... ... ... 25 5/8 .. .. .. + 1/2

Period ended

09/30/94 ... ... ... ... ... 3rd qtr. ... ... Year ago ... ... Chg.

Revenue ... .. .. ... ... .. $145,451 ... ... $139,674 ... ... +4.1%

Net Income ... .. ... ... .. $13,278 .. .. .. $15,228 .. .. .. -12.8%

Primary EPS .. .. ... ... .. $0.87 ... ... .. $0.95 ... ... .. -8.4%

... ... ... ... ... ... ... 9 mos. ... ... .. Year ago ... ... Chg.

Revenue ... ... ... ... ... $451,738 .. .. .. $409,429 ... ... +10.3%

Net Income .. .. .. ... ... $50,788 ... .. .. $50,312 .. .. .. +0.9%

Primary EPS .. .. .. .. ... $3.27 ... ... ... $3.18 ... ... .. +2.8%

Figures in thousands (except per share data.)

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