Merrill Lynch Reports Third Quarter 2007 Net Loss from Continuing Operations of $2.85 Per Diluted Share.Record Net Revenues from Global Private Client, Equity Markets and Investment Banking for the First Nine Months of 2007 NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Merrill Lynch Merrill Lynch & Co., Inc. (NYSE: MER TYO: 8675 ), through its subsidiaries and affiliates, provides capital markets services, investment banking and advisory services, wealth management, asset management, insurance, banking and related products and services on a global basis. (NYSE NYSE See: New York Stock Exchange : MER mer Among the Cheremi and Udmurt peoples of Russia, a sacred grove where people of several villages gathered periodically to hold religious festivals and sacrifice animals to nature gods. ) today reported a net loss from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the for the third quarter of $2.3 billion, or $2.85 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, significantly below net earnings of $2.22 per diluted share for the second quarter of 2007 and $3.14 for the third quarter of 2006. Third quarter 2006 net earnings per diluted share, excluding the impact of the one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. , after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. net benefit of $1.1 billion ($1.8 billion pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta ) related to the merger of Merrill Lynch Investment Managers (MLIM MLIM Merrill Lynch Investment Managers (UK) ) and BlackRock BlackRock Inc. (NYSE: BLK) is a major American investment management firm. As of September 30, 2007, BlackRock’s assets under management totaled $1.3 trillion[2] across fixed income, liquidity, equity, alternative investment and real estate strategies. (NYSE: BLK BLK Black BLK Blank BLK Block BLK Bulk BLK Blocked Shot (basketball) BLK Blocked Kick (football) BLK Blackpool, England, United Kingdom - Blackpool (Airport Code) ), were $1.97. Third quarter 2007 results reflect significant net write-downs and losses attributable to Merrill Mer·rill , James 1926-1995. American poet whose works include Divine Comedies (1976), which won a Pulitzer Prize. Lynch's Fixed Income, Currencies & Commodities (FICC FICC Fixed Income Clearing Corporation FICC Federal Identity Credentialing Committee FICC Federal Interagency Coordinating Council FICC Fixed Income, Currency and Commodities FICC Frequency Interference Control Center ) business, including write-downs of $7.9 billion across CDOs and U.S. sub-prime mortgages, which are significantly greater than the incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. $4.5 billion write-down Write-Down Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. Merrill Lynch disclosed at the time of its earnings pre-release. These write-downs and losses were partially offset by strong revenues in Global Wealth Management (GWM GWM - Generic Window Manager. An extensible window manager for the X Window System. It is built on top of an interpreter for the WOOL language. ftp://export.lcs.mit.edu/contrib/gwm, ftp://avahi.inria.fr/contrib/gwm. ), Equity Markets, and Investment Banking, particularly in regions outside of the U.S. The results described above and herein, exclude Merrill Lynch Insurance Group (MLIG) which is reported under discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. . Third quarter 2007 total net revenues of $577 million decreased 94% from $9.8 billion in the prior-year period and were down 94% from $9.7 billion in the second quarter of 2007. Merrill Lynch's third quarter 2007 pre-tax net loss was $3.5 billion. At the end of the third quarter, book value per share was $39.75, down slightly from the end of the third quarter of 2006. "Mortgage and leveraged finance-related write-downs in our FICC business depressed our financial performance for the quarter. In light of difficult credit markets and additional analysis by management during our quarter-end closing process, we re-examined our remaining CDO (Collaborative Data Objects) A programming interface from Microsoft for accessing MAPI-based e-mail, calendaring and scheduling servers. Originally called "OLE Messaging" and "Active Messaging," CDO wraps the Enhanced MAPI library into a COM object that provides the positions with more conservative assumptions. The result is a larger write-down of these assets than initially anticipated," said Stan O'Neal E. Stanley "Stan" O'Neal is the present Chief Executive Officer and Chairman of the Board of Merrill Lynch & Co. Inc., having served in numerous senior management positions at the company prior to this appointment. , chairman and chief executive officer. "We expect market conditions for sub-prime mortgage-related assets to continue to be uncertain and we are working to resolve the remaining impact from our positions," Mr. O'Neal continued. "Away from the mortgage-related areas, we continue to believe that secular trends secular trend The relatively consistent movement of a variable over a long period. A stock in a secular uptrend is an indicator that the security has experienced an extended period of rising prices. in the global economy are favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. and that our businesses can perform well, as they have all year." Net revenues for the first nine months of 2007 were $20.0 billion, down 23% from $25.8 billion in the comparable 2006 period. Net earnings per diluted share of $1.94 were down 62% from $5.12 in the prior-year period, and net earnings of $2.0 billion were down 61%. Results for the first nine months of 2006 included $1.2 billion of one-time, after-tax compensation expenses ($1.8 billion pre-tax) related to the adoption of Statement of Financial Accounting Standards No. 123R ("one-time compensation expenses") incurred in the first quarter of 2006, as well as the net benefit associated with the MLIM merger. Excluding these one-time items, net revenues for the first nine months of 2007 were down 16%, net earnings per diluted share were down 63% and net earnings were down 62% from the prior-year period. The pre-tax profit margin for the first nine months was 12.8%, down 14.2 percentage points from the comparable 2006 period, or down 16.3 percentage points excluding the one-time items. The annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. return on average common equity was 6.5%, down 13.0 percentage points from the first nine months of 2006, or down 13.4 percentage points excluding the one-time items. Business Segment Review: In the first quarter of 2006, Merrill Lynch recorded the one-time compensation expenses (pre-tax) in the business segments as follows: $1.4 billion to Global Markets and Investment Banking, $281 million to Global Wealth Management and $109 million to Merrill Lynch Investment Managers (which ceased to exist as a business segment upon its merger with BlackRock). The one-time net benefit associated with the MLIM merger was recorded in the Corporate Segment. Comparisons to results from the third quarter and first nine months of 2006 in the following discussion of business segment results exclude the impact of these one-time items. A reconciliation of these segment results appears on Attachment V to this release. Global Markets and Investment Banking (GMI GMI Governance Metrics International (New York, New York) GMI Giant Magneto-Impedance GMI Global MSF Interoperability GMI General Motors Institute GMI General Mills, Inc. ) GMI recorded negative net revenues and a pre-tax loss for the third quarter of 2007 of $3.0 billion and $4.4 billion, respectively, as strong net revenues from Equity Markets and Investment Banking were more than offset by the net losses in FICC. GMI's third quarter net revenues also included a net benefit of approximately $600 million due to the impact of the widening of Merrill Lynch's credit spreads on the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of certain long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. liabilities.
-- Third quarter and year-to-date 2007 net revenues from GMI's
three major business lines were as follows:
FICC net revenues were negative $5.6 billion for the
quarter, impacted primarily by losses across CDOs and U.S.
sub-prime mortgages. These positions consist of CDO
trading positions and warehouses, as well as U.S.
sub-prime mortgage related whole loans, warehouse lending,
residual positions and residential mortgage backed
securities. See below for details.
[TABLE OMITTED]
Third quarter write-downs of $7.9 billion across CDOs and
U.S. sub-prime mortgages are significantly greater than
the incremental $4.5 billion write-downs Merrill Lynch
disclosed at the time of its earnings pre-release. This is
due to additional analysis and price verification
completed as part of the quarter-end closing process,
including the use of more conservative loss assumptions in
valuing the underlying collateral.
FICC net revenues were also impacted by write-downs of
$967 million on a gross basis, and $463 million net of
related fees, related to all corporate and financial
sponsor, non-investment grade lending commitments,
regardless of the expected timing of funding or closing.
These commitments totaled approximately $31 billion at the
end of the third quarter of 2007, a net reduction of 42%
from $53 billion at the end of the second quarter. The net
losses related to these commitments were limited through
aggressive and effective risk management, including
disciplined and selective underwriting and exposure
reductions through syndication, sales and transaction
restructurings.
Other FICC businesses reported strong results with record
net revenues in interest rates and currencies and solid
results in commodities and commercial real estate.
For the first nine months of 2007, FICC net revenues were
negative $153 million as strength in interest rate
products, currencies and commercial real estate was more
than offset by declines in credit products and the
structured finance and investments business.
-- Equity Markets net revenues increased 4% from the
prior-year quarter to $1.6 billion, driven by substantial
growth in client volumes. Revenues from cash trading,
equity-linked trading, and financing and services were
significantly higher compared to the prior-year period,
while revenues declined in the Strategic Risk Group and
the private equity business. Excluding the private equity
business, net revenues for the remaining Equity Markets
businesses increased 40% from the 2006 third quarter. For
the first nine months of 2007, Equity Markets net revenues
were a record $6.1 billion, up 23% from the prior-year
period, driven by strength in cash equities, equity-linked
and the financing and services businesses.
-- Investment Banking generated record net revenues for a
fiscal third quarter, up 23% from the prior-year period to
$1.0 billion. Revenues were driven by growth in both
merger and acquisition advisory services and equity
origination, partially offset by declines in debt
origination. Investment Banking net revenues for the first
nine months of 2007 were a record $3.8 billion, up 38%
from the 2006 period, reflecting the momentum in Merrill
Lynch's global origination franchise. Compared with the
first nine months of 2006, significant increases in
acquisition advisory services, equity and debt
origination, more than offset a decline in leveraged
finance origination revenues.
-- The third quarter 2007 pre-tax net loss for GMI was $4.4
billion compared with $1.5 billion of pre-tax earnings in the
prior-year period.
-- GMI's net revenues for the first nine months of 2007 were
$9.7 billion, down 28% from the record prior-year period.
Pre-tax earnings were $6 million, down from $4.5 billion in
the prior-year period.
Global Wealth Management (GWM) GWM generated robust net revenues and pre-tax earnings for the third quarter and for the first nine months of 2007, driven by strong results in Global Private Client (GPC (1) A PC that uses the Linux-based gOS operating system. See gOS. (2) (GPC Group) Originally the Graphics Performance Characterization committee of the NCGA, the GPC Group is now part of Standard Performance Evaluation Corporation (SPEC) and oversees the following ), as well as by a solid contribution from Global Investment Management (GIM a. 1. Neat; spruce. ), which includes earnings from Merrill Lynch's investment in BlackRock.
-- GWM's third quarter 2007 net revenues were $3.5 billion, up
29% from the third quarter of 2006:
-- GPC's net revenues increased 23% to $3.3 billion from the
prior-year period, driven by year-over-year increases in
every major revenue category, including record fee-based
revenues, which reflected higher asset values and
continued strength in flows into annuitized-revenue
products, as well as sizeable increases in transaction and
origination revenues, which included a few particularly
large deals, and net interest revenues. For the first nine
months of 2007, GPC's net revenues increased 16% over the
prior-year period to a record $9.6 billion, also driven by
every major revenue category.
-- GIM's net revenues increased 210% year-over-year to $270
million, due primarily to revenues from Merrill Lynch's
investment in BlackRock, which began to contribute to
revenues during the 2006 fourth quarter, as well as
increases in revenues from Merrill Lynch's ownership
positions in other investment management companies and the
business that creates alternative investment products for
GPC clients. GIM's net revenues for the first nine months
of 2007 were $836 million, up 153% from the comparable
period.
-- GWM's third quarter 2007 pre-tax earnings were $953 million,
up 70% from the third quarter of 2006. The pre-tax profit
margin was 26.9%, up from 20.4% in the prior-year period,
driven by strong revenue growth in GPC, continued discipline
in managing the business with a focus on operating leverage,
and the impact of the investment in BlackRock.
-- For the first nine months of 2007, GWM's net revenues
increased 21%, to a record $10.4 billion, driven by both GPC
and GIM. Pre-tax earnings increased 46% to $2.7 billion,
demonstrating the continued operating leverage in this
business, despite continuing investment in GWM's leading
product offerings, technology platform, and training
initiatives. GWM's year-to-date pre-tax profit margin was
26.1%, up 4.5 percentage points from 21.6% in the comparable
prior-year period.
-- Turnover among Financial Advisors (FAs) remained near
historical lows, particularly among top-producing FAs. FA
headcount reached 16,610 at quarter-end, an increase of 410
FAs for the quarter, reflecting the continuing trend of
favorable net recruiting from competitors and the addition of
graduates from our training programs.
-- Client assets in products that generate annuitized revenues
ended the quarter at $691 billion, up 20% from the third
quarter of 2006, and total client assets in GWM accounts were
a record $1.8 trillion, up 14%. Net inflows of client assets
into annuitized-revenue products were $10 billion for the
third quarter, and total net new money was $26 billion, the
highest quarterly level in over six years. For the first nine
months of 2007 net inflows of client assets into
annuitized-revenue products were $38 billion, and total net
new money was $51 billion.
-- On September 21, 2007 Merrill Lynch closed its acquisition of
First Republic Bank, which further bolsters Merrill Lynch's
private client organization by growing its private banking
franchise, broadening high net worth client relationships and
deepening GPC's management expertise. First Republic provides
personalized, relationship-based banking services, including
private banking, private business banking, real estate
lending, trust, brokerage and investment management.
-- On August 13, 2007 Merrill Lynch announced the divestiture of
its insurance business MLIG, as part of a broader strategic
relationship with AEGON, NV. The transaction is expected to
close in the fourth quarter of 2007, and GPC's results have
been restated to exclude the results of MLIG.
Merrill Lynch Investment Managers (MLIM) On September September: see month. 29, 2006, Merrill Lynch merged MLIM with BlackRock in exchange for a total of 65 million common and preferred shares Preferred shares Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders. See: Preferred stock. representing an economic interest of approximately half of the combined BlackRock. Following the merger, the MLIM business segment ceased to exist, and under the equity method of accounting, an estimate of the net earnings associated with Merrill Lynch's ownership position in BlackRock is recorded in the GIM portion of the GWM segment. For the third quarter of 2006, MLIM's net revenues were $700 million, and its pre-tax earnings were $284 million. For the first nine months of 2006, MLIM's net revenues were $1.9 billion, and its pre-tax earnings were $746 million. Additional Items: Compensation Expenses Compensation and benefits expenses were $2.0 billion for the third quarter of 2007 compared with $3.9 billion in the third quarter of 2006. Compensation and benefits expenses were $11.6 billion, or 58.1% of net revenues for the first nine months of 2007, up from 49.2% in the comparable prior-year period, excluding the one-time compensation expenses and the one-time MLIM benefit. Merrill Lynch remains focused on paying its best performing employees competitively. In the same vein, it may be necessary to accrue To increase; to augment; to come to by way of increase; to be added as an increase, profit, or damage. Acquired; falling due; made or executed; matured; occurred; received; vested; was created; was incurred. compensation expense at a higher level in the fourth quarter to ensure it can appropriately reward employees whose performance will drive future growth. Non-compensation Expenses Overall, non-compensation expenses were $2.1 billion for the third quarter of 2007, up 14% from the prior year period. Details of the significant changes in non-compensation expenses from the third quarter of 2006 are as follows: * Brokerage, clearing, and exchange fees were $365 million, up 31% due primarily to higher transaction volumes. * Occupancy costs Occupancy costs are the whole life costs of buildings and their associated land from occupancy until disposal. These costs may be incurred on a regular or irregular basis. Occupancy costs are those costs related to occupying a space including; rent, real estate taxes, personal and related depreciation were $297 million, up 15% due principally to higher office rental expenses and office space added via acquisitions. * Advertising and market development costs were $182 million, an increase of 12% due to increased costs associated with increased business activity. * Expenses of consolidated investments totaled $68 million, down from $142 million primarily due to the deconsolidation of certain MLIM investments in connection with the merger. * Other expenses were $341 million, an increase of 71% due primarily to the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of approximately $100 million of identifiable intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. related to First Franklin. Income Taxes The effective tax rate for the first nine months of 2007 was 23.1%, compared with 27.0% in the prior-year period, or 25.9% excluding the one-time items. Capital and Liquidity Management Based on current market conditions, Merrill Lynch's liquidity position is strong. Because the markets are unsettled, and market conditions that affect the company's liquidity may become more severe, the company is continuing to closely monitor its liquidity and is pursuing opportunities to preserve and enhance its liquidity and capital position. As part of its active management of equity capital, Merrill Lynch repurchased 19.9 million shares of its common stock for $1.5 billion during the third quarter of 2007, largely to offset the 11.6 million shares issued as consideration upon closing the First Republic Bank acquisition. Staffing Merrill Lynch's full-time full-time adj. Employed for or involving a standard number of hours of working time: a full-time administrative assistant. full employees totaled 64,200 at the end of the third quarter of 2007, a net increase of 2,300 during the quarter, due primarily to the acquisition of First Republic and the impact of seasonal training programs. Stan O'Neal and Jeff Edwards, senior vice president and chief financial officer, will host a conference call today at 10:00 a.m. ET to discuss the company's 2007 third quarter results. The conference call can be accessed via a live audio webcast available through the Investor Relations Investor relations The process by which the corporation communicates with its investors. website at www.ir.ml.com or by dialing (888) 810-0245 (U.S. callers) or (706) 634-0180 (non-U non-U adj. Chiefly British Not characteristic of the upper class, especially in language usage. [non- + U2. .S. callers). On-demand replay of the webcast will be available from approximately 1:00 p.m. ET today at the same web address. Merrill Lynch is one of the world's leading wealth management, capital markets and advisory companies with offices in 38 countries and territories and total client assets of approximately $1.8 trillion One thousand times one billion, which is 1, followed by 12 zeros, or 10 to the 12th power. See space/time. (mathematics) trillion - In Britain, France, and Germany, 10^18 or a million cubed. In the USA and Canada, 10^12. . As an investment bank, it is a leading global trader and underwriter underwriter n. a company or person which/who underwrites an insurance policy, issue of corporate securities, business, or project. (See: underwrite) UNDERWRITER, insurances. One who signs a policy of insurance, by which he becomes an insurer. of securities and derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. across a broad range of asset classes and serves as a strategic advisor to corporations, governments, institutions and individuals worldwide. Merrill Lynch owns approximately half of BlackRock, one of the world's largest publicly traded investment management companies with more than $1 trillion in assets under management Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management or investment management business to gauge how much money they are managing. . For more information on Merrill Lynch, please visit www.ml.com. Merrill Lynch may make forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. , including, for example, statements about management expectations, strategic objectives, growth opportunities, business prospects, investment banking pipelines, anticipated financial results, the impact of off balance sheet arrangements, significant contractual obligations, anticipated results of litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. and regulatory investigations and proceedings, and other similar matters. These forward-looking statements are not statements of historical facts and represent only Merrill Lynch's beliefs regarding future performance, which is inherently uncertain. There are a variety of factors, many of which are beyond Merrill Lynch's control, which affect the operations, performance, business strategy and results and could cause its actual results and experience to differ materially from the expectations and objectives expressed in any forward-looking statements. These factors include, but are not limited to, financial market volatility; actions and initiatives taken by current and potential competitors; general economic conditions; the effect of current, pending and future legislation, regulation, and regulatory actions; and the other additional factors described in the Risk Factors section of Merrill Lynch's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the fiscal year ended December 29, 2006 and also disclosed from time to time in its subsequent reports on Form 10-Q Form 10-Q See 10-Q. and 8-K, which are available on the Merrill Lynch Investor Relations website at www.ir.ml.com and at the SEC's website, www.sec.gov. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made. Merrill Lynch does not undertake to update forward-looking statements to reflect the impact of circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or or events that arise after the date the forward-looking statements are made. The reader should, however, consult any further disclosures Merrill Lynch may make in its future filings of its reports on Form 10-K, Form 10-Q and Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. . Merrill Lynch may also, from time to time, disclose financial information on a non-GAAP basis where management believes this information will be valuable to investors in gauging the quality of Merrill Lynch's financial performance and identifying trends. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
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