The Babcock & Wilcox Company (B&W) is a U.S.-based company that provides design, engineering, manufacturing, construction and facilities management services to nuclear, renewable, fossil power, industrial and government customers worldwide. B&W's boilers supply more than 300,000 megawatts of installed capacity in over 90 countries around the world.[1]
During World War II, over half of the American US Navy fleet was powered by Babcock & Wilcox boilers.[2] The company has its headquarters in Charlotte, North Carolina with operations in Lynchburg, VA; Barberton, Ohio; West Point, Mississippi; Cambridge, Ontario, Canada; Mount Vernon, Indiana; Oak Ridge, Tennessee; and Euclid, Ohio.



With $3.346 trillion USD of assets under management (AUM) as of December 31, 2009, BlackRock (NYSE:BLK), Inc. is the world's largest publicly traded investment management and financial service firm.[1] BlackRock's main source of revenue comes from its investment advisory fees generated by managing financial asset types including fixed income, equity, real estate, and alternative investments as well as fees generated from "BlackRock Solutions".[2] Blackrock does not engage in proprietary trading since it may represent a potential conflict of interest with its clients. In 2009, the company earned $4.0 Billion of its $4.7 Billion in revenue from advisory fees.[3]

In 2006, BlackRock merged with Merrill Lynch Investment Managers, nearly tripling its assets under management (AUM) and turning it into one of the world's largest investment management firms, with over $1 trillion in assets.[4]

On June 16, 2009 Barclays (BCS) accepted a BlackRock offer of $13.5 billion to sell its Barclays Global Investors division, making BlackRock the world's largest asset manager with over $3.35 trillion in assets under management.[5] BlackRock Solutions is a brand name under which the company offers risk management and enterprise investment services, which provides services for $9 trillion in assets, liabilities, and derivatives[6]

BlackRock's fourth quarter of 2010 net income was significantly higher than analyst estimates, as its net income jumped to $670 million, up 77 percent from the period a year earlier.[7] The boost in performance was attributed to improving market conditions, strong investor demand, and the "re-risking" of investors. In other words, many of BlackRock's clients are beginning to take on more risk, which often have higher performance bonuses attached to it.

Contents
1 Company Overview
1.1 Business and Financial Metrics
1.2 Business Segments
1.2.1 Investment advisory and administration fees (85.7% of 2009 Revenues)[9]
1.2.2 BlackRock Solutions (10.1% of 2009 Revenues)[9]
1.2.3 Distribution Fees (2.3% of 2009 Revenues)[9]
1.2.4 Other Revenue (2.0% of 2009 Revenues)[9]
2 Trends and Forces
2.1 BlackRock has begun to develop its own global trading platform
2.2 BlackRock must successfully integrate its operations with Barclays Global Investors
2.3 BlackRock's source of revenues have slowly shifted away from fixed income assets toward equities
3 Competition
4 References
Company Overview

Headquartered in New York, BlackRock manages assets for both large institutional clients and private individual investors internationally, although the majority of its business is conducted in North America and Europe. BlackRock offers a breadth of financial investment products, including fixed income, equities, cash management, and alternative investments. BlackRock's revenue comes primarily from advisory and administration fees for managing and advising assets for its clients.

Business and Financial Metrics
In 2009, BlackRock had total revenues of $4.70 billion, operating income of $1.28 billion, and net income of $875 million.[8] Total revenues declined by $364 million in 2009, mostly as a result of its investment advisory income declining by $431 million.[9] However, this decline was partially offset by an increase in BlackRock Solutions fees of $84 million.[9] Despite the reduction in total revenues, BlackRock's net income rose to $875 million, a $91 million increase from its 2008 net income.[10] Even though operating expenses remained roughly the same as in 2008, BlackRock was able to increase its net income because its non-operating expenses decreased from $422 million in 2008 to only $28 million in 2009, primarily as a result of valuation gains related to hedge funds, mortgage funds, and credit funds.[11] As of December 31, 2009 BlackRock managed $3.35 trillion of assets, a $2.04 trillion, increase compared to 2008, or an increase of 156%.[1] $1.85 trillion of the increase was a result of BlackRock acquiring Barclays Global Investors, was due to the BGI Transaction, with the remaining $189 billion of growth being a result of new business, investment performance, market appreciation and favorable foreign exchange movements.[1]

BlackRock Financials (In Millions) 2005[12] 2006[12] 2007[12] 2008[8] 2009[8]
Total Revenues 1,191 2,098 4,845 5,064 4700
Total Expenses 850 1,626 3,551 3,471 3,422
Operating Income 341 472 1,294 1,593 1,278
Non-Operating Income 35 56 529 (574) (6)
Net Income 237 323 995 786 897
BlackRock's 2010 first quarter net earnings increased from $84 million in 2009 to $423 million, more than five times the year ago period.[13] Many analysts predicted even higher earnings, as BlackRock has had a full year to merge and integrate Barclays Global Investors into its operations. However, BlackRock's CEO Fink cited some minor issues in the integration that led BlackRock to miss its earnings forecast.


BlackRock's 2010 second quarter net earnings more than doubled compared to the year ago period, increasing to $432 million.[14] However, for the second straight quarter there was a net asset outflow from BlackRock, as its total AUM declined by 6.3% to $3.151 trillion.[14]

BlackRock's third quarter of 2010 net income was significantly higher than expected, as its net income rose to $551 million for the quarter, compared to $317 million for 2009.[15] The strong performance was attributed in part to the continued integration with Barclays Global Investors. BlackRock also had net assets under management increase by about $50 billion for the quarter, reversing the trend of net asset outflows from the second quarter of 2010.[15]

Business Segments
BlackRock operates the company as a single business. However, its revenues can be broken down into its revenue sources: Investment advisory and administration fees, BlackRock Solutions, Distribution Fees, and Other Revenue.



BlackRock 2009 revenue broken down by segment.[9]
Investment advisory and administration fees (85.7% of 2009 Revenues)[9]
BlackRock's Investment advisory and administration earns fees under four sub categories: i) Fixed Income, ii) Equities, iii) Cash Management, and iv) Alternative Investments. These fees make up the vast majority of BlackRock's revenues, earning it $3.83 billion in 2009, a $431 million decline from 2008.[16] This decrease is attributed to a $357 million decrease in active equity products, $141 million less in alternative investment products, and an $83 million decrease in cash management products; however, these declines were partially countered by a $164 million increase in equity index products as a result of the Barclays Global Investors acquisition.[16] The decreases are associated with a reduction in total AUM as a result of overall market declines. BlackRock's performance fees increased by $25 million in 2009 to $202 million, representing a 14% increase relative to its 2008 performance fees of $177 million.[16] The relatively higher markets and performance in 2009 compared to the tumultuous 2008 made it more likely for BlackRock to earn performance fees.

BlackRock Solutions (10.1% of 2009 Revenues)[9]
Under the BlackRock Solutions name, the company has developed an operating platform called Alladin to support its investment and risk management operations. BlackRock offers Alladin, along with other services, to institutional investors.[17] In 2009, due to increased demand for risk management products, revenue earned from BlackRock Solutions increased 21% from $393 million in 2008 to $477 million in 2009.[9]

Distribution Fees (2.3% of 2009 Revenues)[9]
Distribution fees in 2009 were $100 million, a $39 million decrease from 2008 as a result of lower sales, redemptions, and lower AUM for its mutual funds.[16]

Other Revenue (2.0% of 2009 Revenues)[9]
Other revenue include property management fees, net interest earned on loans, sales commission, and fund accounting services. Other revenue declined by $3 million in 2009 to $95 million.[18] This decline was mostly driven by a $31 million decline in property management fees because BlackRock began outsourcing some of their contracts beginning in the fourth quarter of 2008.

Trends and Forces

BlackRock has begun to develop its own global trading platform
BlackRock announced on September 11, 2009 that is has begun to develop a global trading platform which will allow it to significantly reduce trading costs.[19] The overall idea behind the platform is to cross trades among its various clients internally, thereby cutting costs related to trading. A quick example would help illustrate the general strategy. Suppose Blackrock has two clients, one who wishes to buy 100 shares of Company A at $100 per share, and another who wishes to sell 100 shares of Company A at $100 per share. Rather than actually making both trades, and thus incurring two sets of trading costs (one for the sale, another for the purchase), BlackRock hopes to internally make the transfer of shares within BlackRock itself, thereby avoiding both sets of trading costs. Being able to reduce its trading costs will alllow BlackRock to charge its clients less per transaction, helping it attract business.

BlackRock must successfully integrate its operations with Barclays Global Investors
After BlackRock acquired Barclays Global Investors in June of 2009, it began merging and integrating its operations. Early signs have shown significant gains from the acquisition and a relatively smooth transition, as BlackRock's first quarter 2010 earnings increased five fold compared to the previous year.[13] However, things have not gone as smoothly as many expected, as BlackRock's CEO Laurence Fink admitted that BlackRock "experienced some significant merger-related outflows in the quarter." [20] Whether BlackRock can successfully continue to integrate Barcalys Global Investors operations into its own without losing investors will make an impact of its future earnings.

BlackRock's source of revenues have slowly shifted away from fixed income assets toward equities
In 2008, 49.8% of BlackRock's investment advisory fees were due to equities, and only 20.3% came from fixed income.[21] This signals a change in their sources of revenue, as in 2006 only 33.6% of investment advisory fees came from equities, and in 2005 income advisory fees stood at only 17.3%.[22] Since 2005, assets allocated to equities as a percentage of total AUM has consistently been less than fixed income, suggesting a higher margin for equities since their earnings are higher despite less total AUM. However, because BlackRock earns revenues based on the total AUM, large fluctuations in the stock market may impact their earnings. For instance, during stock market downturns, the total value of equities will decline, thereby reducing BlackRock's earnings.

Competition

BlackRock faces competition from other companies that offer investment management services to both retail and institutional clients, including Barclays Global Investors, State Street (STT), and Fidelity Investments (privately held). BlackRock was ranked fourth worldwide in terms of global AUM in 2008, behind Barclays Global Investors, State Street, and Fidelity Investments.[23] However, after BlackRock acquired Barclays Global Investors, it became the largest asset manager in the world with over $3.35 assets under management as of December 31, 2009.

State Street (STT), with $1.91 trillion in AUM as of December 31, 2009, is an investment advisory firm based in Boston, Massachusetts.[24] In 2009, it had total revenues of $8.64 billion, and net loss of $1.88 billion.[25]
Fidelity Investments, with $1.5 trillion in AUM is the largest mutual fund company in the United States.[26] In 2009, it had total revenue of $11.48 billion, and $2.51 billion in operating income.[26]
Company Assets Under Management (AUM) (In Billions) Revenue (In Billions) Net Income (In Billions)
BlackRock 3,350 4.70 0.897
State Street (STT) 1,991 8.64 -1.881
Fidelity Investments 1,250 12.94 2.360 (Operating Income)
 
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