BlackRock profit rises in volatile quarter, shares up

By Trevor Hunnicutt

NEW YORK (Reuters) - BlackRock Inc reported a greater-than-expected increase in profit on Thursday, helped by strong demand for the world's largest asset manager's investment products in a volatile first quarter.

A fresh infusion of cash from investors, combined with favorable currency movements, boosted BlackRock's revenue from managing money and offset growth in expenses and compensation.

It also benefited from a lower tax rate following the $1.5 trillion overhaul passed late last year, which cut the corporate rate.

BlackRock shares climbed 2.4 percent on Thursday. In the last year, the stock is up more than 41 percent compared with an 18.5 percent rise for a Thomson Reuters index that includes more than a dozen of its rivals in the United States.

BlackRock's results showed the company's evolution from a traditional fund manager, whose profits typically decline when markets stumble, into a steadier financial technology operation.

"I'm viewing this more as a technology firm than a traditional asset manager," said Edward Jones analyst Kyle Sanders.

Markets swung wildly during the first quarter, as investor enthusiasm over U.S. corporate tax cuts was blunted by concerns about inflation, a global trade war and U.S. central bank policy. Stock and bond funds declined.

Nonetheless, BlackRock's profits grew. The company is known for its iShares-brand exchange-traded funds (ETFs) that track markets or themes, for example biotechnology companies, Chinese stocks or U.S. government bonds.

The products can be managed cheaply at scale, and have taken market share from trading in single stocks as well as pricier funds managed by stockpickers and financial derivatives like futures.

In the most recent quarter, ended March 31, BlackRock attracted nearly $57 billion, including $34.7 billion into the ETFs. The ETF figure was down from $64.5 billion a year earlier, reflecting investors' skittishness.

TECH FOCUS

BlackRock Chief Executive Larry Fink said the company's institutional clients reacted dramatically to market turbulence by moving cash into the bond market, selling investments to fund other investments, share buybacks or acquisitions.

"It's better to be BlackRock in this atmosphere," Fink told Reuters. "We have always differentiated ourselves in more volatile times as we did in the financial crisis."

BlackRock, which Fink co-founded in 1988, bought iShares from Barclays Plc in the wake of the global financial crisis of 2007-2009, making the company into a colossus. Assets under management were $6.32 trillion at the end of the quarter.

In addition to using technology to improve investment performance, boost its sales and automate routine functions, the company also licenses its internal operating system to clients and competitors and breaks them out on a different revenue line.

Fink told Reuters he expects revenue to grow at mid-teen percentages. Earlier this year, the company opened an artificial intelligence laboratory in California's Silicon Valley and added Microsoft Corp executive Peggy Johnson to its board of directors.

Total revenue rose 15.9 percent to $3.6 billion from the same quarter in 2017, while expenses rose just 9.8 percent to $2.2 billion.

Overall, the New York-based company's net income rose to $1.09 billion, or $6.68 per share, in the quarter. That figure is 28 percent higher than $859 million, or $5.21 per share, a year earlier.

Excluding compensation expenses that BlackRock said do not affect its book value, BlackRock earned $6.70 per share. Analysts on an average expected BlackRock to report $6.39 per share, according to Thomson Reuters I/B/E/S.

(Reporting by Trevor Hunnicutt; Additional reporting by Diptendu Lahiri in Bengaluru; Editing by Arun Koyyur and Bernadette Baum)