Merrill Books First Quarter Loss, Wealth Revenues Strong

Tom Burroughes

18 April 2008

The US investment house and wealth manager Merrill Lynch made a net loss based on continuing operations in the first quarter of 2008 of $1.97 billion, or $2.20 per diluted share, contrasting with net earnings of $2.03 billion a year before. Merrill Lynch, which has suffered heavy losses linked to the US sub-prime mortgage crisis, said first-quarter net revenues plunged by 69 per cent from the previous year, mainly as a result of debt write-downs totaling $1.5 billion and a negative credit adjustment of $3.0 billion. Other banking peers such as Citi and UBS have also been hit by the credit crunch. The wealth management arm of Merrill Lynch achieved strong revenues, however, hitting a record of $3.6 billion, up 8 per cent from the first quarter of 2007, the New York-listed company said in a statement. The wealth management division’s first quarter pre-tax earnings of $720 million, however, fell by 8 per cent year-on-year, as the firm fully reserved for an $80 million client receivable. Pre-tax profit margins fell to 20 per cent from 23.5 per cent a year before. The number of Merrill Lynch’s financial advisors fell by 80 to 16,600 at the quarter-end, as net positive growth in experienced advisors was more than offset by a strategic decision to shed lower-performing trainees. Excluding this reduction, experienced FA headcount rose by 75 for the quarter. Total client assets in global wealth management accounts at the end of the 2008 first quarter were $1.6 trillion, virtually unchanged year-on-year, as the market depreciation from the end of the first quarter of 2007 was offset by net new money inflows. Among other details, Merrill said it recorded $9 billion of net inflows of client assets into annuitised revenue products and $4 billion net new money, despite challenging market environment. Commenting on the figures, John Thain, chairman and chief executive, said: “Despite this quarter’s loss, Merrill Lynch’s underlying businesses produced solid results in a difficult market environment.” “The firm’s $82 billion excess liquidity pool has increased from year-end levels, and we remain well-capitalised,” he added. Moody's Investors Service, the credit rating agency, said on Thursday it may cut Merrill's credit rating for the second time in six months, citing "deteriorating conditions in the mortgage market" and the potential for $6 billion of write-downs in addition to those announced in the past three quarters. Last October, Merrill's rating was lowered one level to A1, the fifth-highest of 10 investment-grade ratings.