Merrill Lynch & Co., the world's biggest securities firm by capital, said second-quarter earnings rose 61 percent, as gains from bond trading and a stock market rally drove revenue higher for the first time since 2000.
Net income at Merrill rose to $1.02 billion, or $1.05 a share, from $634 million, or 66 cents, a company statement said. That beat the 72-cent average forecast of 17 analysts surveyed by Thomson Financial. Net revenue climbed 7 percent to $5.3 billion.
Shares of the New York based firm climbed $2.09 to $53.50 at 8:23 a.m. on Instinet. They'd gained 35 percent so far this year.
Merrill is benefiting from expense cuts by Chief Executive Officer Stanley O'Neal, who eliminated a quarter of the New York- based firm's staff in the past two years. Revenue gains resulted from bond-trading gains and a stock-market advance that increased daily trading on the New York Stock Exchange increased 10 percent and lifted the Standard & Poor's 500 Index by 15 percent.
``Merrill slashed more costs than anyone else and retail activity started to pick up in June and that's big for Merrill,'' said Mark Bronzo, who helps manage $67 billion at Gartmore Global Investments. He owns about 1 million Merrill shares. ``It looks like Merrill is turning the corner.''
Profit Margin
Merrill's pretax profit margin rose to 27.6 percent, compared with 19.1 percent in the second quarter of 2002 and exceeding the goal the firm's management set for the end of 2003. Since the goal was announced in 2000, revenue has fallen more than $8 billion.
Return on equity, a measure of how well the firm reinvests earnings, rose to 17 percent from 12 percent in the year-earlier quarter.
Merrill's total expenses dropped 3.7 percent to $3.9 billion from $4 billion in the year-earlier quarter. It lowered the workforce to 48,300, 1,300 lower than the end of the first quarter.
``These earnings clearly demonstrate the considerable operating leverage and diversification that are the results of those (cost-cutting) efforts, as well as the impact of revenue growth initiatives and continued operating discipline,'' O'Neal said in a statement.
Trading, Brokerage
Since the end of 2000, Merrill has eliminated 22,400 jobs. O'Neal has shrunk the international operations, scaling back or closing units in Japan, Canada and South Africa. At the same time, he has expanded the fixed-income trading, foreign exchange and derivatives businesses as investment banking slumped.
Merrill's trading revenue jumped 51 percent to $1.1 billion, mainly because of bond-trading gains.
In the past six quarters, securities firms increased trading profit as investment banking slumped. Goldman Sachs, Morgan Stanley, Lehman and Bear Stearns Cos. collected a combined $5 billion in trading revenue, about three times more than their investment banking revenue in the quarter ended May 31.
The $341 million earned by Merrill's brokerage division was unchanged with the year-earlier period and accounted for 34 percent of total earnings in the quarter. The division's net revenue of $2.1 billion dropped 6 percent to $2.1 billion, accounting for 40 percent of the firm's net revenue.
Commission revenue fell 14 percent to $1 billion. The decline resulted from reduced mutual fund and listed equity revenues from private clients, the company statement said.
Merrill's brokerage is the world's biggest with 13,600 advisers and $1.1 trillion in clients' assets. In the 18 months that O'Neal was head of the unit before becoming president in July 2001, O'Neal, 51, reduced costs and targeted the wealthiest individuals. He has adopted a similar strategy for the entire firm since he was named president.
Job Cuts
Merrill's investment bankers gained market share during the quarter. The firm was the No. 3 global mergers adviser in the second quarter, up from eighth a year earlier.
Among the biggest mergers Merrill advised on during the quarter was IDEC Pharmaceuticals Corp.'s $6.1 billion acquisition of Biogen Inc. and First Data Corp.'s $5.7 billion purchase of Concord EFS Inc. Merrill advised the acquiring company in both instances.
In global stock underwriting, Merrill rose to third in the second quarter from fifth in the same period last year by advising on transactions like Assicurazioni Generali's $751 million stock sale.
Merrill is a passive, minority investor in Bloomberg LP, the parent of Bloomberg News.
Net income at Merrill rose to $1.02 billion, or $1.05 a share, from $634 million, or 66 cents, a company statement said. That beat the 72-cent average forecast of 17 analysts surveyed by Thomson Financial. Net revenue climbed 7 percent to $5.3 billion.
Shares of the New York based firm climbed $2.09 to $53.50 at 8:23 a.m. on Instinet. They'd gained 35 percent so far this year.
Merrill is benefiting from expense cuts by Chief Executive Officer Stanley O'Neal, who eliminated a quarter of the New York- based firm's staff in the past two years. Revenue gains resulted from bond-trading gains and a stock-market advance that increased daily trading on the New York Stock Exchange increased 10 percent and lifted the Standard & Poor's 500 Index by 15 percent.
``Merrill slashed more costs than anyone else and retail activity started to pick up in June and that's big for Merrill,'' said Mark Bronzo, who helps manage $67 billion at Gartmore Global Investments. He owns about 1 million Merrill shares. ``It looks like Merrill is turning the corner.''
Profit Margin
Merrill's pretax profit margin rose to 27.6 percent, compared with 19.1 percent in the second quarter of 2002 and exceeding the goal the firm's management set for the end of 2003. Since the goal was announced in 2000, revenue has fallen more than $8 billion.
Return on equity, a measure of how well the firm reinvests earnings, rose to 17 percent from 12 percent in the year-earlier quarter.
Merrill's total expenses dropped 3.7 percent to $3.9 billion from $4 billion in the year-earlier quarter. It lowered the workforce to 48,300, 1,300 lower than the end of the first quarter.
``These earnings clearly demonstrate the considerable operating leverage and diversification that are the results of those (cost-cutting) efforts, as well as the impact of revenue growth initiatives and continued operating discipline,'' O'Neal said in a statement.
Trading, Brokerage
Since the end of 2000, Merrill has eliminated 22,400 jobs. O'Neal has shrunk the international operations, scaling back or closing units in Japan, Canada and South Africa. At the same time, he has expanded the fixed-income trading, foreign exchange and derivatives businesses as investment banking slumped.
Merrill's trading revenue jumped 51 percent to $1.1 billion, mainly because of bond-trading gains.
In the past six quarters, securities firms increased trading profit as investment banking slumped. Goldman Sachs, Morgan Stanley, Lehman and Bear Stearns Cos. collected a combined $5 billion in trading revenue, about three times more than their investment banking revenue in the quarter ended May 31.
The $341 million earned by Merrill's brokerage division was unchanged with the year-earlier period and accounted for 34 percent of total earnings in the quarter. The division's net revenue of $2.1 billion dropped 6 percent to $2.1 billion, accounting for 40 percent of the firm's net revenue.
Commission revenue fell 14 percent to $1 billion. The decline resulted from reduced mutual fund and listed equity revenues from private clients, the company statement said.
Merrill's brokerage is the world's biggest with 13,600 advisers and $1.1 trillion in clients' assets. In the 18 months that O'Neal was head of the unit before becoming president in July 2001, O'Neal, 51, reduced costs and targeted the wealthiest individuals. He has adopted a similar strategy for the entire firm since he was named president.
Job Cuts
Merrill's investment bankers gained market share during the quarter. The firm was the No. 3 global mergers adviser in the second quarter, up from eighth a year earlier.
Among the biggest mergers Merrill advised on during the quarter was IDEC Pharmaceuticals Corp.'s $6.1 billion acquisition of Biogen Inc. and First Data Corp.'s $5.7 billion purchase of Concord EFS Inc. Merrill advised the acquiring company in both instances.
In global stock underwriting, Merrill rose to third in the second quarter from fifth in the same period last year by advising on transactions like Assicurazioni Generali's $751 million stock sale.
Merrill is a passive, minority investor in Bloomberg LP, the parent of Bloomberg News.
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