Merrill Lynch says it had a second-quarter net loss of $4.7 billion vs. earnings of $2.1 billion a year earlier. Second-quarter 2008 results include a pre-tax restructuring charge of $445 million related to headcount reductions. Its FA force and their results, though, remain intact, the company says.
“Our core franchise continues to perform well despite the extremely challenging market environment,” says Merrill Lynch Chairman and CEO John A. Thain.
Global wealth management (or GWM), which includes Merrill’s private-client operations, had second-quarter 2008 net revenues of $3.4 billion, down 5 percent from the second quarter of 2007. They were impacted by expenses tied to investments in FA workstations, online capabilities and international expansion, the company says.
Global private client had net revenues of $3.2 billion, down 3 percent from the prior-year period.
The global financial-advisor headcount was 16,690 at quarter-end, an increase of 30 FAs during the quarter and 490 from the second quarter of 2007, as GWM “continued to be successful in retaining and recruiting high-quality experienced FAs,” according to company reports.
“FA turnover, particularly among first- and second- quintile FAs, declined during the quarter and continues to outperform the industry average,” says CFO Nelson Chai.
“We also continue to realize success in our recruiting efforts, particularly in our top two quintiles where we added almost 140 FAs on a net basis (globally),” Chai explains.
Outside the Americas, Merrill Lynch’s continued focus and investment in the GWM franchise increased international FA headcount by 11 percent year over year. Total client assets in GWM accounts remained at $1.6 trillion at the end of the 2008 second quarter.
During the quarter, net inflows of client assets into annuitized-revenue products stood at $8 billion, but net new money was negative $5 billion. “This represents our first quarter of negative net new money since the second quarter of 2003, and reflects seasonal client income tax payments and the merger-related departure of a significant institutional retirement client” according to Chai.
Merrill Lynch’s overall net revenues were negative $2.1 billion in the most recent period, compared with positive $9.5 billion in the prior-year period. This includes losses totaling $3.5 billion related to U.S. super-senior ABS CDOs (or collateralized debt obligations comprised of asset-backed securities) and credit-valuation adjustments of negative $2.9 billion related to hedges with financial guarantors, about half of which were tied to U.S. super-senior ABS CDOs.
The company also had a net loss of $1.7 billion in the investment portfolio of its U.S. banks, as well as a loss of $1.3 billion from certain residential-mortgage exposures.
Net revenues for the second quarter were $7.5 billion, excluding these net losses, credit-valuation adjustments and a $91 million net benefit related to credit-spread widening on Merrill’s long-term debt liabilities. This represents a revenue drop of 21 percent, year over year, and a slight increase from the first quarter or 2008, the company says.
Still, the company says its global wealth management, or GWM, operations have had “continued solid revenues, with recurring revenues greater than 70 percent of total net revenues.”
To enhance its overall capital position, Merrill has sold its 20-percent stake in Bloomberg, L.P., to Bloomberg Inc., for $4.4 billion. Merrill Lynch is also in talks to sell a major stake of Financial Data Services, now part of its global wealth management operations, for some $3.5 billion. The company says it does not intend to sell its interest in investment manager BlackRock.