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Friday, May 03, 2002

Alliance Disappoints

by: Sean Hanna, Editor in Chief

Despite positive net asset flows of $5.1 billion, Alliance Capital widely missed the mark with its first quarter earnings report. The New York City-based firm reported earnings of $0.60 per share, five cents short of what analysts expected. This miss may mean that the firm will be forced to shave more expenses going forward.

While much of the recent focus on Alliance has been on the part it played in the Enron debacle, the firm may face other pressing issues in its operations. Unlike most competitors Alliance has yet to significantly reduce expenses. Analysts on the conference call with management said that the company still seems to be making "tepid" steps to make cuts.

Bruce W. Calvert, Alliance's chief executive told analysts that full-year earnings could drop by 5 percent to 10 percent based on the drop in equity prices in April.

The report marked the end to a dismal earnings reporting season for the fund industry. Six of the twelve "pure-play" followed by Wall Street missed their earnings targets in the first quarter. Another three firms met expectations and only two did better than the consensus. Eaton Vance, the last of the list, has not yet released its results.

Alliance Capital is the largest of the dozen firms. It was also the firm that fell short of the forecasts by the largest margin. All told, the firm reported that its operating net dropped 13 percent from a year ago as revenues fell 3 percent and expenses remained the same.

The firm blamed lower asset management fees as one reason for the shortfall. Its reported investment advisory and service fees slipped two percent to $486.3 million from $497.8 million. Part of the reason was also investors shifting from equity funds to fixed income funds. Average assets under management were $448 billion during the quarter, down $453.5 billion a year ago.

Hitting the firm even harder was an eight percent decline in distribution revenue.  

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