Wilmington Trust narrows loss, but misses analyst estimates

Wilmington Trust Corp., the banking, trust, and wealth management services company, reported an unexpected quarterly loss Friday due to higher loan loss provisions and impaired securities, masking improvements in its wealth advisory services and corporate client services businesses.
Wilmington, which has about $56 billion in assets under management, reported a loss of $11.2 million, or 23 cents a share, narrower than a year-earlier loss of $68.5 million, or $1.02 a share, the company said. Analysts, however, had expected profit of 4 cents a share, according to Bloomberg. Wilmington still owes the U.S. government $330 million under the capital purchase program.
The company set aside almost $83 million for loan losses last quarter, about 23% more than a year earlier, when loan loss provisions totaled about $68 million. Wilmington attributed that increase to problem commercial construction loans in the Delaware area. “Other than temporary impairments” last quarter totaled about $18 million.
Chairman and chief executive officer Ted Cecala emphasized the pockets of strength in wealth advisory and corporate client services last quarter, which helped mitigate credit problems, but he noted that even in wealth advisory services, results were hampered somewhat by client preferences.
Wealthy clients preferred cash and fixed income for most of 2009, Mr. Cecala said, which dragged revenue down because those options are cheaper than equities. “This makes it difficult to see the benefits of business development,” he said on a conference call. In addition, Wilmington waived fees on money market mutual funds to maximize investors’ return, reducing wealth advisory revenue by more than $4 million last quarter, Mr. Cecala said.
Asked by an analyst whether investors are now becoming more comfortable with equities, Mark Graham, the head of the wealth advisory services business, responded, “That number has begun to work its way back up a little more towards the equity side. We’re beginning to see that slow but steady trend back towards the equity allocation.”
Wealth advisory revenue for the fourth quarter totaled about $47 million, 12% lower than a year earlier, but 3% higher than the third quarter, the company reported. “Wealth advisory services finished the year with good momentum to carry into 2010,” Mr. Cecala said.
Like other wealth management firms, Wilmington has been hiring more advisers to try to drive revenue further. A 3% increase in expenses quarter over quarter was attributed to adding salaries in wealth advisory and corporate client services. Corporate client services reported its best quarter ever, partly on the strength of engagements in the Lehman Brothers and General Motors bankruptcies, according to the company
Taking today’s earnings report into account, credit ratings agency Fitch Ratings downgraded Wilmington’s long term and short term debt rating by one notch, citing concern over commercial real estate.
Fitch noted Wilmington’s stronger wealth advisory services and corporate client services businesses, however, writing in a note, “Wilmington’s ratings continue to be supported by its diverse revenue streams,” and “this diversity has given Wilmington significant incremental capacity to absorb problems in its loan portfolio.”
“Fitch incorporates an expectation that fee revenue will continue to provide a stable and sizeable revenue source into the future.”
Wilmington’s assets under management in the quarter were up $10 billion compared with last year.