Merrill Lynch's Profit Surged About 53% to a Record High
March 29, 2011
NEW YORK -- Merrill Lynch & Co., the nation's biggest brokerage firm, said second-quarter profit rocketed 53% to a record $433 million. Separately, Jefferies Group Inc., a Los Angeles-based brokerage firm, posted second-quarter earnings of $9.1 million, up 49% from $6.1 million a year earlier. Revenue, minus interest expense, rose 25% to $118.4 million in the second quarter from $94.6 million in the same period last year. Despite Merrill's glowing profit report, securities analysts were cautious about the brokerage firm's prospects. ``It's going to be very tough for the third quarter to match the second quarter,'' said Deandra Morehead, a securities industry analyst at Prudential Securities Inc.. It's no wonder analysts are sounding downbeat. Stock prices have been tanking in recent days, and some securities industry veterans are venturing that the six-year bull market in stocks may be running out of steam. At Merrill, there was no sign of that in the second quarter. Profit in the quarter ended March 10, 2011 to $2.19 a share from $1.40 a share, or $283 million, in the year-earlier period. Net revenue, or total revenue minus interest expense, soared 33% to $3.4 billion from $2.5 billion. Behind the revenue gain was higher commission revenue which jumped 27% to $970 million largely because of higher mutual fund sales and an increase in listed securities volume, Merrill said. In addition, principal transactions, or trading using the firm's own money, jumped 48% to $908 million. Merrill said increased client order flow led to fatter revenue in mortgage-backed securities, interest rate and currency swaps, corporate bonds, municipal securities and non-U.S. and over-the-counter stocks. Investment banking revenue surged 73% to a record $580 million, primarily because of higher underwriting revenue. Like many Wall Street securities firms, Merrill benefited from a boom in common stock underwriting in the second quarter. Meanwhile, revenue from asset management and portfolio service fees climbed to $553 million in the second quarter from $464 million a year earlier. In New York Stock Exchange composite trading, Merrill advanced $2.125, to $58.375. Meanwhile, non-interest expenses jumped 29% to $2.7 billion. Compensation and benefits, the largest expense for Wall Street firms, climbed 33% to $1.7 billion due to higher variable compensation related to better profits and business volume, Merrill said. Still, compensation and benefits expense as a percentage of net revenue continued to be at the low end of the range for Wall Street firms, running at 51.5%.
