New York, Oct. 17: Third-quarter profit at Merrill Lynch & Co rose more than expected, the firm said on Wednesday, but the gain was a result of aggressive cost cutting, not an upturn in Merrill’s basic businesses. Reflecting the sour climate for financial services companies, Merrill, the nation’s largest brokerage firm, said that its revenue fell 15 per cent, to $ 4.4 billion. Investment banking, trading and brokerage revenues all dropped sharply.
But the firm was able to more than offset the decline in business through another round of sharp reductions in expenses.
Merrill posted net income of $ 693 million, or 73 cents a share, up 64 per cent from $ 422 million, or 44 cents a share, in the quarter a year earlier. The results were bolstered by $ 114 million, or 12 cents a share, in insurance recovery payments related to the attacks of September 11, 2001. Merrill was temporarily displaced from its headquarters in the World Financial Center in Lower Manhattan after the nearby World Trade Center was destroyed. Net income for the period a year earlier included $ 53 million in such payments.
Excluding the gain from insurance payments, Merrill said it had earned $ 579 million, or 61 cents a share, compared with $ 475 million, or 50 cents a share, in the quarter a year earlier. On that basis, analysts expected Merrill to post earnings of 58 cents a share, according to Thomson First Call.
Merrill, which has been acutely conscious of the need to lower its costs since July 2001, when E. Stanley O’Neal took over as president and chief operating officer, cut 1,200 jobs in the third quarter.
As a result of those and earlier reductions, the firm’s compensation expenses fell 19 per cent from a year ago, to $ 2.2 billion. Noncompensation expenses dropped 21 per cent, excluding items related to September 11, to $ 1.3 billion.
Since the start of 2001, the firm has cut 18,600 jobs, about 26 per cent of its work force. Merrill now has 53,400 employees.
“Stan O’Neal’s expense controls have saved the day,” said Brad Hintz, an analyst at Sanford C. Bernstein. “He has brought his expenses down more than any other major firm on the Street.”