Bloomberg News

Invesco Net Rises as Morgan Stanley Deal Softens Market Drop

October 24, 2011

(Adds closing share price in fifth paragraph.)

Oct. 24 (Bloomberg) -- Invesco Ltd., owner of the Invesco, Van Kampen and PowerShares funds, said third-quarter profit rose 7.9 percent as last year’s purchase of Morgan Stanley’s mutual- funds business helped offset the impact of market losses.

Net income climbed to $166.9 million, or 36 cents a share, from $154.7 million, or 32 cents, a year earlier when costs tied to the acquisition reduced earnings, Atlanta-based Invesco said in a statement today. Excluding some items, earnings of 42 cents a share beat the average estimate of 40 cents a share in a Bloomberg survey of 17 analysts.

Investors deposits “were better than our estimates, and the company plans to repurchase more shares in the fourth quarter than we expected,” James Shanahan, an analyst for Wells Fargo Securities LLC in St. Louis, said today in a research note.

Clients deposited a net $2.2 billion in the quarter as investments in real estate and exchange-traded funds offset stock fund withdrawals. Chief Executive Officer Martin L. Flanagan, 51, added $115 billion in client assets in June 2010 through the $1.37 billion Morgan Stanley purchase.

Invesco climbed 5 percent to close at $19.67 in New York trading. The shares have declined 18 percent this year, compared with the 20 percent drop for the 19-member Standard & Poor’s index of asset managers and custody banks.

Deposits Climb

Revenue increased 4.7 percent from a year earlier to $998 million, driven by a 7.4 percent gain in investment management fees even as assets under management declined by 1 percent to $598 billion in the year ended Sept. 30. Assets fell 8.5 percent in the quarter. Measured by the MSCI AC World Index, stocks fell 8 percent in the year ended Sept. 30, and 6.9 percent this year.

Expenses of $770 million were unchanged from a year ago as marketing costs dropped by 33 percent.

Alternative products attracted $2.3 billion in the quarter, Chief Financial Officer Loren Starr said, while institutional money-market funds lost $1.1 billion in withdrawals.

“We know there is more to show, most obviously when equity markets begin to stabilize,” Starr said today in an interview.

The firm expects to buy back $100 million of shares in the fourth quarter, Flanagan said, bringing the yearly total to $443 million.

Shares Buyback

Invesco’s earnings in the third quarter last year were reduced by $17.8 million due to costs associated with the Morgan Stanley purchase. In the three months ended Sept. 30, integration costs cut profit by $4.7 million, while the outsourcing of the firm’s European transfer agency and restructuring distribution efforts in Europe reduced profit by $5.3 million.

The firm’s decision to terminate its naming rights to the stadium of the National Football League’s Denver Broncos resulted in a $10.4 million tax credit.

The company also benefited as its effective tax rate decreased to 26 percent for the third quarter from 29 percent in the second quarter. Excluding the tax change would reduce earnings by about 3 cents a share, according to Wells Fargo’s Shanahan.

Diversified managers have done better during the stock- market selloff than those that provide mostly stock funds.

BlackRock Inc., based in New York and the world’s biggest money manager, said Oct. 19 that third-quarter profit climbed 8 percent to $595 million even as investors withdrew $10.2 billion. Denver-based Janus Capital Group Inc., with a product line dominated by actively traded stock funds, said Oct. 20 that net income fell 16 percent to $27.4 million as investors withdrew $2.3 billion, its ninth straight quarter of redemptions.

--Editors: Steven Crabill, Christian Baumgaertel

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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