By Kirsten Grind
A soaring dollar damped BlackRock Inc.'s first-quarter results
as Chief Executive Laurence Fink warned about the greenback's
impact on global companies, small businesses and tourism.
BlackRock reported an 8.7% increase in earnings but missed Wall
Street revenue expectations because of weaker fees tied to a
stronger dollar. Investors pushed shares of the world's largest
asset manager down 1.27% to $371.87 in early Thursday afternoon
trading.
The dollar is up more than 19% in the last year as the American
economy gains strength, a shift that is squeezing profits at giant
U.S. multinationals that compete in world markets and prompting
analysts to make their deepest cuts to earnings forecasts since the
financial crisis. The dollar's rise is also making travel to the
U.S. more expensive.
At BlackRock, the dollar's rise cut fees from clients paying in
weaker foreign currencies. The impact was a drop of $87.6 billion
in assets under management during the first quarter, worse than a
$63 billion drop in assets under management in the fourth
quarter.
As a result, first-quarter revenue of $2.72 billion missed
analyst expectations of $2.79 billion.
James Shanahan, an equity research analyst at Edward Jones, said
other large, global money managers are likely to face fee losses
from foreign currency conversions this quarter. BlackRock was the
first large asset manager to report first quarter earnings.
"It's a signal of what's to come," Mr. Shanahan said.
Mr. Fink said in the interview that the strong dollar makes it
hard for U.S. companies to compete internationally, affects small
businesses struggling to compete with international rivals and
could potentially hurt tourism as international visitors cut back
on travel to the U.S.
"For years, we benefited from [foreign exchange]," Mr. Fink
said. He added that he believes big currency moves "are behind
us."
The chief executive also warned about a "dangerous imbalance"
across the financial system as fixed-income investors hunt for ways
to make money during a time of low interest rates. "The
increasingly desperate search for yield is the single greatest
source of risk in the financial system, " Mr. Fink said on a
conference call with analysts.
During the first quarter, investors poured money into
BlackRock's bond funds and exchange-traded funds, helping the
company post a profit of $4.84 a share. Analysts polled by Thomson
Reuters had expected earnings of $4.52 a share.
Citigroup analyst William Katz called BlackRock's investor
inflows strong and diverse in a research note Thursday.
"[BlackRock] sets a high flow bar for the industry, unlikely to be
matched in our view," he said.
Overall, BlackRock reported earnings of $822 million, or $4.84 a
share, up from $756 million, or $4.40 a share, a year ago.
Excluding certain items, earnings grew to $4.89 a share from $4.43
a share.
Strong investor inflows of $70.4 billion during the quarter
helped buoy the firm. The company's iShares division, which offers
ETFs, a type of fund that trades on an exchange, saw $35 billion of
net inflows during the quarter. Retail clients invested a net $12.8
billion in BlackRock's fixed-income funds.
The company also has been a beneficiary of billions of dollars
that have left rival Pacific Investment Management Co. since the
departure of its star manager Bill Gross last year.
Assets under management grew to $4.77 trillion from a $4.4
trillion a year ago and $4.65 trillion at the end of the previous
quarter.
Mr. Fink said on the analyst conference call that BlackRock is
focused on expanding its infrastructure business, which invests in
oil pipelines, roads and other similar projects. BlackRock recently
announced a public-private partnership in Mexico, helping to
finance two natural gas pipelines.
"It's a major component of our positioning," Mr. Fink said on
the call.
Write to Kirsten Grind at kirsten.grind@wsj.com
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