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Merrill Posts Loss, Shares FA Data

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After posting a net loss and write-downs of additional $6.5 billion in the first quarter of 2008, Merrill Lynch says it is cutting some 3,000 jobs – but that plan leaves its 16,000 financial advisors generally intact, news reports say. The brokerage firm will also take a restructuring charge of $350 million in the current quarter for the layoffs but expects to generate some $800 million of cost savings each year.

Financial advisor (FA) headcount was 16,660 at quarter-end, a decline of 80 FAs for the quarter. However, the company says, “positive growth in experienced FAs was more than offset by a strategic decision to accelerate the departure of lower-performing trainees; excluding this reduction, experienced FA headcount increased by 75 FAs for the quarter.”

On April 17, the company reported a net loss from continuing operations for the first quarter of 2008 of nearly $2 billion vs. net earnings of $2 billion in the first quarter of 2007. The overall net loss for Q1’08 was $1.96 billion.

Net write-downs totaled $1.5 billion related to U.S. asset-backed securities-collateralized debt obligations (or ABS CDO) and credit valuation adjustments of negative $3 billion related to hedges with financial guarantors, most of which related to U.S. super-senior ABS CDOs.

The brokerage firm notes, however, that it also had record quarterly net revenues of $3.6 billion in global wealth management, record net interest profit, strong fee-based revenues, $9 billion of net inflows of client assets into annuitized revenue products, and $4 billion net new money, despite challenging market environment

“Despite this quarter’s loss, Merrill Lynch’s underlying businesses produced solid results in a difficult market environment,” says Chairman and CEO John Thain.

While global wealth management’s first-quarter 2008 net revenues rose 8 percent from the first quarter of 2007, its pretax earnings of $720 million were down 8 percent year over year, as the firm fully reserved for an $80 million client receivable. The pretax profit margin was 20 percent, down about 24 percent.

Global private client net revenues for the period were $3.3 billion, up 7 percent from the prior-year period, reflecting increases across all revenue lines and the inclusion of First Republic revenues, the company says. Strong fee-based revenue growth, as well as record net interest revenues driven by the addition of First Republic and increased deposits, played an important role in these results.

Net inflows of client assets into annuitized-revenue products were $9 billion for the first quarter, and total net new money was $4 billion. Total client assets in wealth management accounts were $1.6 trillion.


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