Federated Investors profits take leap
Pittsburgh Post-Gazette
Federated Investors on Thursday reported a 9 percent jump in first quarter profits, as rising interest rates sharply reduced the fees the Downtown investment manager waived on its money market funds.
Federated said it earned $49.6 million, or 49 cents per share, for the quarter, vs. earnings of $45.4 million, or 44 cents per share, in the year-ago quarter. Revenue increased 1 percent to $273.5 million.
Analysts had forecast earnings of 47 cents per share on revenue of $290 million.
Federated and other money fund operators have been waiving fees on the interest-rate sensitive investments to make sure investors broke even or registered small gains at a time of record low interest rates. The Federal Reserve has started increasing interest rates, which has brought relief to Federated and its competitors.
Fee waivers had an $800,000 impact on Federated’s pretax earnings in the first quarter vs. a $9.4 million impact in last year’s first quarter.
In an interview after the company’s shareholder meeting at the David L. Lawrence Convention Center on Thursday, president and CEO J. Christopher Donahue estimated fee waiver impact for the current quarter will be about $100,000 and that one more interest rate hike by the Federal Reserve should eliminate them entirely.
Federated’s assets under management stood at $361.7 billion at the end of the quarter, down 2 percent from year-ago levels. Equity assets hit a record $64.8 billion during the quarter.
Mr. Donahue said Wall Street’s enthusiastic reaction to the election of President Donald Trump had something to do with that.
But he expects the biggest impact of the new administration will be on the regulatory front. Many of the regulations enacted during former President Barack Obama’s eight years in the White House offered modest benefits but imposed onerous costs on the industry, Mr. Donahue said. “At least that has stopped,” he said.
The regulations were enacted to address abuses that contributed to the 2008 financial crisis
Mr. Donahue said Federated would also benefit from the tax cut plan Mr. Trump unveiled Wednesday. Federated paid an effective tax rate of 35 percent last year, according to the company’s securities filings.
Any savings Federated realizes if taxes are reduced will be reinvested in the business or returned to shareholders, Mr. Donahue said.
Federated’s results were reported after Wall Street trading closed. Federated’s shares finished Thursday at $28.08, up 18 cents. They are off less than 1 percent this year.