Merrill Earnings Ugly, But Brokerage Is The Sweet Spot

Stan O’Neal opened Merrill Lynch’s earnings call by not beating around the bush: The firm had a net loss of $2.3 billion, due largely in part from $7.9 billion in write-downs related to exposure to sub-prime mortgages and collateralized debt obligations (CDOs).

Stan O’Neal opened Merrill Lynch’s earnings call by not beating around the bush: The firm had a net loss of $2.3 billion, due largely in part from $7.9 billion in write-downs related to exposure to sub-prime mortgages and collateralized debt obligations (CDOs).

“The bottom line is, we got it wrong by being overexposed to sub-prime,” said O’Neal this morning on the conference call. “And no one—no one—is more disappointed than I am with that result.” The $7.9 billion in write-downs was larger than anticipated; on October 5th the firm cautioned investors the write-downs would be closer to $4.5 billion. To view the earnings release, click here.

One very bright spot for the firm, however, was its Global Wealth Management division. GWM includes the brokerage unit (Global Private Client Group) and investment management (Global Investment Management), but the brokerage unit accounts for nearly all revenues. In the third quarter, GWM grossed $3.5 billion in net revenues, a 29 percent increase from the same quarter last year. Of that total, Global Private Client accounted for $3.3 billion, a 23 percent increase from the same period a year ago. Pre-tax profits in GWM were $953 million, up 70 percent from the same period last year. The pre-tax profit margin for the division was 26.9 percent, up from 20.4 percent in the same period last year.

In addition, Merrill added 410 advisors to its ranks for an industry-topping total of 16,610 FCs (as they call them). And they continue to outperform their peers in the asset gathering race: According to Jeff Edwards, Merrill’s CFO, net new assets in the quarter were $26 billion, bringing Merrill’s total client assets to $1.8 trillion.

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