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Merrill Lynch Revenues Slide as Investors Stay on the Sidelines

Merrill Lynch’s parent, Bank of America, today confirmed what advisors at the brokerage had known about the third quarter—investors kept their money at home, or at least, out of the market.

Merrill Lynch’s parent, Bank of America, today confirmed what advisors at the brokerage had known about the third quarter—investors kept their money at home, or at least, out of the market.

In its quarterly earnings report, BofA said investment and brokerage revenue was down $270 million against the second quarter; brokerage fees were off $175 million sequentially due to depressed industry trading volumes. Overall, revenues for Merrill Lynch Global Wealth Management were down 4.6 percent sequentially, to $3.1 billion, although revenue was up about one-half of 1 percent year over year.

Bank of America noted that the quarterly comparisons were skewed somewhat by its sale of Columbia Management’s long-term asset management business to Ameriprise Financial, which closed on May 1. There’s also seasonality in the second-quarter numbers, since they’re often hefty with fee income from investment sales related to spring taxes, bank spokesman Jerome F. Dubrowski said. Yet Dubrowski conceded that clients also held onto their money last quarter. “You’ve got some people sitting on the sidelines right now that aren’t investing,” he said.

Merrill added about 200 advisors to its ranks in the third quarter for a total of 15,340, up 1.3 percent sequentially and 2.4 percent year over year. Advisor produced last quarter, on average, $851,000, roughly flat with the second quarter but up 1.7 percent year over year. Merrill Lynch is part of Bank of America’s Global Wealth & Investment Management segment, which includes the bank’s U.S. Trust private wealth management unit. Global Wealth & Investment Management had net income of $313 million on total revenues of $4.07 billion, compared to $234 million in income on $3.87 billion in revenue a year earlier.

Bank of America overall had a net loss of $7.3 billion for the quarter, driven by a goodwill impairment charge of $10.4 billion related to its Global Card Services segment.

Perhaps what was most interesting about today’s earnings report was what had been omitted from it. The supplemental earnings report that contained specific data about Merrill’s operations had been cut in half from the last quarter, from four pages to two. The data that are no longer available include Merrill’s net income and noninterest expenses. Second-quarter profits at Merrill were $316 million, or 89 percent of the $356 million in profits reported by the Global Wealth segment. “The Merrill Lynch business has been merged with the Bank of America business, and this is how we’re showing our wealth management division going forward,” Dubrowski said. “There’s less visibility in the legacy Merrill Lynch business, but the Merrill Lynch business and the Bank of America brokerage business are now one. We are presenting it now as one business line, one consolidated set of financials for that business line like we do all the other business lines that you look at.”

One analyst who follows Merrill and was dismayed by the development was Alois Pirker at Aite Group. “I’m a little bit disappointed by the lack of transparency there,” he said. “I hope it’s not a new normal and I hope they go back to a richer report on the brokerage side because it’s an important business for them. It is such a franchise. It’s not just some home loan business you buy and you integrate it and it disappears. It’s a brand.”

Also missing from the earnings report was quarterly progress on cross-selling between Bank of America and Merrill Lynch, one of the stated reasons for the bank’s acquisition of the brokerage in January 2009. Referrals between BofA’s commercial and corporate businesses and its Global Wealth segment grew 24 percent between the first and second quarters, but no fresh data were available on how that changed last quarter. The earnings report said the bank had sold about 200,000 loan and deposit products to Merrill Lynch customers through the first three quarters of 2010.

“Anecdotally, the referral rates are strong,” Dubrowski said, and there have been gains in deposit growth, long-term assets under management, and the number of financial advisors. “That’s what people are looking at. They’re looking at how are we performing as we integrate the two organizations,” he said. “The acquisition of Merrill is doing exactly what we intended it to do, which is to diversify the source of income and revenue for the company.”

Pirker said it’s too early to gauge the success of cross-selling. “Unfortunately the market doesn’t give you a year or two to roll out the strategy. It’s a quarter-to-quarter exercise, and it would be nice to see what it really means,” he said.

Morgan Stanley Smith Barney and Wells Fargo Advisors report quarterly earnings on Wednesday. UBS reports on Tuesday, Oct. 26.

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