Fidelity Investments' 2010 profit rises 17 percent

AP News
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Posted: Mar 11, 2011 11:27 AM
Fidelity Investments' 2010 profit rises 17 percent

Fidelity Investments said Friday its operating profit rose 17 percent last year to nearly $3 billion, lifted by gains at the privately held company's mutual fund sales operations and its brokerage business.

The company limited expense growth to 4 percent, further bolstering the bottom line at Boston-based Fidelity. Its work force was 37,000, unchanged from a year ago but down from a peak of more than 46,000 in 2007.

The nation's second-largest mutual fund company, surpassed last year by Vanguard Group in the top slot based on fund assets, reports limited financial performance data in an annual report released to its private shareholders.

A letter from CEO and Chairman Edward "Ned" Johnson III offered no clues as to when the 80-year-old might name a successor. Johnson has held the leadership posts since 1977. His family owns a 49 percent stake in the company, with key employees owning the rest.

Fidelity said its operating profit last year was $2.94 billion compared with $2.51 billion in 2009. Operating income excludes items such as interest expenses and taxes.

Revenue rose nearly 7 percent to nearly $12.3 billion from about $11.5 billion.

Assets under management rose 6 percent to almost $1.6 trillion, driven in part by rising values for stocks due to last year's 15 percent rise in the Standard & Poor's 500 index. Total administered assets _ including money for which Fidelity performs record keeping and other administrative services _ rose 8 percent to nearly $3.5 trillion.

Fidelity said it expanded its market-leading share at its fund distribution operations, which sell investment products _ including funds managed by other companies _ to Fidelity clients.

The company said it also improved its share over rivals in the retail brokerage trading business. However, trades for which Fidelity received commissions averaged 456,000 per day last year, down 2 percent from 2009.

Investors withdrew a net $49.4 billion from Fidelity's mutual funds and other Fidelity-managed investments _ a result that Johnson called disappointing. Most of the money pulled out came from stock funds, which experienced net withdrawals industrywide last year as investors remained nervous about stocks in the wake of the 2008 market crash.

Money surged in to bond funds at Fidelity and other companies through most of last year. But fear of rising interest rates and greater confidence in the economy has recently triggered a reversal, with investors returning to stocks, and withdrawing cash from many categories of bonds, especially municipal bonds.

Fidelity said its mutual funds performed better than 67 percent of their competitors last year, down from 74 percent in 2009. Still, last year's figure is an improvement from 56 percent in 2008.

In the key U.S. stock fund category, Fidelity's funds topped 58 percent of their peers in 2010, down from 67 percent in 2009.

Last year's 17 percent rise in operating income topped the company's 5 percent year-over-year gain in 2009. In 2008, as stocks plunged, Fidelity's operating income fell 18 percent.

In 2010, Johnson said the company "continued to make major strategic investments for the future in almost every area of our business, offsetting some prior years in which our growth was limited."

Because of Johnson's age, speculation about who will replace him and when _ including the possibility that his daughter, Abigail Johnson, will be the successor _ has persisted in recent years at the 65-year-old company. Fidelity says it has a succession plan to replace Ned Johnson, but won't disclose details.

In May, Fidelity announced it was creating two organizations to oversee its far-flung operations, hiring Abigail Johnson to run the unit overseeing personal and institutional investing businesses, as well as workplace savings plans. Fidelity tapped an outsider, Ronald O'Hanley, president and CEO of BNY Mellon Asset Management, to run its new asset management and corporate services unit.