Fidelity’s Profit Tumbles 39% in ’02

Fidelity Investments, the largest U.S. mutual fund company, said Monday that its earnings fell 39% last year. It was the second straight year of declining profit.

Net income at Fidelity’s Boston-based parent, FMR Corp., which oversees more than 150 funds, including Fidelity Magellan, declined to $808.2 million from $1.33 billion, the firm said in its annual report. Revenue dropped 8.9% to $8.94 billion.

Assets under management slipped 12% as the third year of falling stock prices led investors to seek shelter in bond funds. The declines have forced Fidelity to trim expenses. Last year, the firm cut its workforce by 7.1% to 29,100. Fidelity also has said it may not give raises this year because of concern that stocks could decline for a fourth year.

“We did cost-cutting last year that we thought got us into a good position for this year,” said Steve Jonas, Fidelity’s chief administrative officer. “We’ve got some cushion in that and we think our expense levels are in good shape.”

Jonas, who served as Fidelity’s chief financial officer last year, said he expects the company’s workforce to be “generally stable” this year as “parts of the business continue to make adjustments.”

Investors withdrew $4.5 billion more than they added to Fidelity’s stock funds in 2002, spokeswoman Anne Crowley said. Investors withdrew an unspecified amount in 2001, the first such outflow since at least 1993, she said.

Fidelity weathered the bear market with fewer job cuts than other financial service companies such as Merrill Lynch & Co., said Eric Kobren, who manages $750 million at Kobren Insight Management and is editor of the Fidelity Insight newsletter.

Merrill, for example, has cut about 22,000 jobs since the third quarter of 2000, almost one-third of its workforce. Fidelity has eliminated about 5,000 jobs, or 15%, from a peak of about 35,000 in early 2000, Kobren said.

“They’ve done a decent job at diversifying their business,” he said. An effort to administer employee benefit plans at other firms “has softened the blow.”