From the July 2008 issue of Research Magazine • Subscribe!

July 1, 2008

Merrill Lynch Adds to Net Losses While Boosting Number of 'Experienced FAs'

Merrill Lynch reported a net loss from continuing operations for the first quarter of 2008 of $1.97 billion and an overall net loss of $1.96 billion vs. net earnings of $2.16 billion for the year-ago quarter.

Revenues were $2.9 billion, down 69 percent from the prior-year period, mainly because of net write-downs totaling $1.5 billion related to U.S. ABS CDOs (asset-backed securities and collateralized debt obligations) and credit-valuation adjustments of negative $3 billion related to hedges with financial guarantors, the company says.

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Merrill's GPC FocusThe investment firm says its private client operations will continue to invest in:o A new online platform for clientso Upgrading of advisor work stations, ando Supporting global growth by adding local products and platforms outside the United States

Source: Merrill Lynch, April 2008

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Despite this quarter's loss, Merrill Lynch's underlying businesses produced solid results in a difficult market environment," says Chairman and CEO John A. Thain. "The firm's $82 billion excess liquidity pool has increased from year-end levels, and we remain well capitalized. In addition, our global franchise is positioned strongly for the future, and we continue to invest in key growth areas and regions."

Merrill's financial-advisor headcount was 16,660 at quarter-end, a decline of 80 FAs. But, the company says, net positive growth in experienced FAs was more than offset by a strategic decision to accelerate th e departure of lower-performing trainees. Excluding this reduction, the number of experienced FAs grew by 75 for the quarter.

Annualized revenue per FA is about $862,000.

Global Private Client net revenues for the first quarter stood at $3.3 billion, up 7 percent from the prior-year period, reflecting increases across all revenue lines and the inclusion of First Republic revenues. And Global Investment Management's first-quarter 2008 net revenues grew 15 percent to $299 million, largely because of increased revenues from Merrill Lynch's investment in BlackRock.

Net inflows of client assets into annuitized-revenue products were $9 billion for the first quarter, and total net new money was $4 billion, reflecting the efforts of both the private client and investment management segments, which together comprise Merrill's Global Wealth Management (or GWM) group. GWM had margins of 22.2 percent in the recent quarter.

Total client assets in GWM accounts at the end of the 2008 first quarter were $1.6 trillion, virtually unchanged year over year, as the market depreciation from the end of the first quarter of 2007 was offset by net new money inflows.

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Janet Levaux, MBA/MA., is the managing editor of Research; reach her at jlevaux@researchmag.com

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