Merrill Lynch said yesterday its push toward fee business helped steady its U.S. retail business, which actually improved during the second quarter due to expense cuts.

The firm’s second-quarter earnings, released yesterday, showed a 19% drop in revenues from the period a year ago. But in the United States, retail net revenues were down only 11% “due to the stability of fees from asset-priced services, and increased net interest profit,” said Tom Patrick, the firm’s CFO.

Net income from the firm’s U.S. retail business was actually up from year ago levels, due to expense reductions. The firm did not release separately U.S. retail numbers.

The firm also said more cost-cutting is coming, although Patrick indicated he did not expect further major cuts to come from the U.S. retail business.

Merrill reduced overall headcount by 2,100 during the second quarter, 800 of whom were brokers. The drop in rep numbers came from attrition, reduced hiring of trainees and office consolidations, Patrick said.

The firm will be pushing alternative investments, as well as its proprietary Merrill Lynch Investment Managers (MLIM) managed accounts and funds. “Recent improvements in the penetration of MLIM products into Merrill Lynch’s private client channels are being sustained,” Patrick said.

Assets in retail accounts were $1.4 trillion at the end of the second quarter. Assets in fee accounts were $208 billion—about 15% of that total.

U.S. clients with smaller account balances are responding favorably to the Financial Advisory Center call centers, Merrill execs claimed. The firm said it is ahead of schedule in moving 500,000 accounts to the call centers in 2001, for a total of 800,000 accounts by year-end.

Patrick said preliminary studies are showing improved client satisfaction from the call centers, “as well as increased revenue velocity.” Call centers are also being implemented outside the United States.

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