Merrill Lynch reported record net earnings for both the third quarter and first nine months of 2006, as net revenues increased over the prior-year periods in all three business segments.
Net earnings for the third quarter of 2006 were US$3 billion, as total net revenues increased significantly from both the third quarter of 2005 and the second quarter of 2006, to US$9.9 billion. The annualized return on common equity for the quarter was 35.3%.
Those figures all include significant net benefits from the closing of the merger between Merrill Lynch Investment Managers and BlackRock. The BlackRock merger included a one-time pre-tax gain of US$2 billion and related non-interest expenses of US$202 million, for a total after-tax net benefit of US$1.1 billion.
Excluding the net benefits from the BlackRock merger, third quarter 2006 net earnings were US$1.9 billion, and net earnings per diluted share of US$2 were higher than any previous quarter for Merrill Lynch and up 43% from the 2005 third quarter and up 23% from the 2006 second quarter.
“This was a very good quarter,” said Stan O’Neal, chairman and chief executive officer of Merrill Lynch. “All three of our business segments delivered solid year-over-year revenue and earnings growth in a business environment that was more challenging than the first half of the year. We also realized a major strategic milestone at the end of the quarter in the completion of the merger of MLIM with BlackRock, which will enable us to enhance our participation in asset management through our ownership of just under half of a better-positioned company with stronger growth prospects.”
“The BlackRock transaction also resulted in a substantial financial gain for Merrill Lynch and will enable us to more efficiently deploy our capital as we continue to build out our capabilities and pursue growth,” O’Neal said. “We remain focused on making high-quality investments globally in people, infrastructure and capabilities that will enable us to better serve clients and capitalize on the secular growth opportunities we see across our businesses.”
Net revenues for the first nine months of 2006 were a record US$26.0 billion, up 35% from the first nine months of 2005. Year-to-date net earnings were a record US$5.2 billion, up 38% from the 2005 period.
Global Markets and Investment Banking generated its highest revenues ever for a fiscal third quarter
despite challenging market conditions during much of the period, demonstrating the cumulative benefits of numerous targeted investments for revenue diversification and profitable growth globally. GMI’s third quarter 2006 net revenues were US$4.4 billion, up 21% from the year-ago quarter. Compared with the third quarter of 2005, net revenues increased in all three major business lines: Fixed Income, Currencies and Commodities, Equity Markets and Investment Banking.
The Global Private Client division saw third quarter 2006 net revenues of US$2.8 billion, up 5% from the year-ago quarter, driven primarily by higher fee-based revenues and net interest profit. Those increases were partially offset by lower transaction and origination revenues, reflecting a more typical seasonal slowdown in client activity than the prior-year period. GPC’s third quarter pre-tax earnings of US$611 million were up 4% from the year-ago quarter, and the pre-tax profit margin was 21.6%, compared with 21.9% in the prior-year period.
Client assets in products that generate annuitized revenues ended the quarter at US$578 billion, up 17% from the end of the 2005 third quarter, and total client assets in GPC accounts were US$1.5 trillion, up 11% from the year-ago quarter.
Merrill Lynch Investment Managers’ third quarter 2006 net revenues were a record US$700 million, up 54% from the 2005 third quarter. The year-over-year increase in net revenues was driven principally by higher long-term asset values, robust net inflows and consolidated investments.