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Merrill: An Able Foil To Bear?

Merrill Lynch’s streak continues. The Wall Street giant posted a first quarter net loss of $1.97 billion, primarily due to net write-downs totaling $1.5 billion related to collateralized-debt obligations (CDOs). This is the third quarter in a row the firm has reported a loss.

Merrill Lynch’s streak continues. The Wall Street giant posted a first quarter net loss of $1.97 billion, primarily due to net write-downs totaling $1.5 billion related to collateralized-debt obligations (CDOs). This is the third quarter in a row the firm has reported a loss.

The firm plans to cut 4,000 employees, a 10-percent reduction. The cuts will cost the firm $350 million in restructuring charges, and are targeted at the Global Markets and Investment Banking (GMI) divisions and support areas—in other words, retail financial advisors are exempt. Yet, argues says John Thain, chairman and CEO in the earnings release, “Despite this quarter’s loss, Merrill Lynch’s underlying businesses produced solid results in a difficult market environment.”

The Global Wealth Management division continues to hum. GWM includes the retail brokerage unit (Global Private Group)—which accounts for nearly all the unit’s revenues—and investment management (Global Investment Management). In the first quarter, GWM grossed $3.6 billion, an 8-percent increase from the same quarter last year. Of that total, Global Private Client accounted for $3.3 billion, a 7-percent increase from the same period a year ago. Pre-tax profits in GWM were $720 million, down 8 percent from the same period last year. The pre-tax profit margin for the division slipped to 20 percent from 23.5 percent a year ago.

In addition, Merrill let go of 80 “lower-performing trainees,” and added 75 “experienced” FAs, making for a total army of 16,660. Net new assets in the quarter were $4 billion, bringing Merrill’s total client assets to $1.6 trillion.

Still, how is GWM able to gather new assets from retail investors when bad news is frequently splashed across newspapers and TV screens regarding the firm’s overall health? Why hasn’t the Wall Street giant brokerage suffered an exodus of assets from the investing public? Well, there is probably nowhere else to go (the news is bad for many big financial institutions); fee-only advisors are benefiting, and are growing faster than wirehouse advisors (of course, that’s off a far-smaller base).

Robert Ellis, who covers wealth management for Celent in Boston, says he’s not overly impressed with GWM’s performance: “$4 billion is very little, even though the markets are down,” Ellis says. “That isn’t that big of a number for an organization of that size with some 16,000 FAs, a private bank and a lending organization.”

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