Despite reporting sizeable net losses for the fourth quarter and full-year 2007 due to write-downs associated with U.S. collateralized debt obligations, Merrill Lynch says its private-client group continues to churn on robust results. The retail brokerage operations now include 16,740 financial advisors, who are averaging more than $850,000 in annual sales or 12-month gross production.
On January 17, the broker-dealer reported:
- Global private client (GPC) net revenues for the fourth quarter of $3.3 billion, the second highest achieved in any quarter, up 10 percent from the prior-year period, reflecting increases across all revenue lines and the inclusion of First Republic revenues.
- GPC net revenues for the full year 2007 of $12.9 billion, up 14 percent year over year, with revenue growth across all lines. Fee-based revenues rose significantly, reflecting higher market values and strong flows into fee-based products.
- Turnover among FAs remained near historical lows, particularly among top-producing FAs. FA headcount reached 16,740 at quarter-end, an increase of 130 FAs for the quarter and 860 for the full year, reflecting the continuing trend of favorable net recruiting from competitors and hiring into training programs.
- Total net new money was $30 billion, the highest quarterly level in seven years. For the full year of 2007, net new money was $80 billion, the highest full-year level since 2000.
- Total client assets in GWM accounts reached a record year-end level of $1.75 trillion, up 8 percent year over year, and annualized revenue per FA is now about $860,000.
Overall, Merrill Lynch reports that the company had a net loss from continuing operations for full-year 2007 of $8.6 billion, far below net earnings from continuing operations of $7.1 billion for 2006. Merrill Lynch’s net loss for 2007 is $7.8 billion vs. net earnings of $7.5 billion for 2006. Net revenues for 2007 are $11.3 billion, down 67 percent from $33.8 billion in 2006, while the 2007 pretax loss from continuing operations is $12.8 billion compared to pretax earnings from continuing operations of $9.8 billion for 2006.
The firm says its performance in 2007 was due to “significant declines in fixed income, currencies & commodities (FICC) net revenues for the second half of the year, which more than offset record full-year net revenues in equity markets, investment banking and global private client (GPC), and record first-half net revenues from FICC. During the second half of 2007, FICC net revenues were materially impacted by a weaker business environment and net write-downs that included $7.9 billion in the third quarter and $11.5 billion in the fourth quarter related to U.S. collateralized debt obligations comprised of asset-backed securities.
“While the firm’s earnings performance for the year is clearly unacceptable, over the last few weeks, we have substantially strengthened the firm’s liquidity and balance sheet,” explains John A. Thain, chairman and chief executive officer. “In addition, a great majority of Merrill Lynch’s key businesses delivered record results in 2007, and as I look ahead to 2008, the firm is intensely focused on continuing this momentum and delivering growth and increased profitability for our shareholders and employees.”
Merrill Lynch has also announced that it appointed Noel B. Donohoe co-chief risk officer. Donohoe will report directly to Thain, as does Edmond Moriarty, who was appointed chief risk officer in September 2007.