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Merrill 4Q earnings surge
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January 25, 2000: 11:18 a.m. ET
Income more than doubles to $1.80 a share, aided by M&A, IPO activity
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NEW YORK (CNNfn) - Merrill Lynch & Co. joined a wave of higher brokerage earnings Tuesday, reporting record fourth-quarter profit that exceeded analysts' estimates.
The improvement was aided by surging investment banking revenue, fees from advising on mergers and acquisitions, and a hot initial public offering market.
Income at the largest U.S. securities firm, in terms of capital and number of brokers, rose to $764 million, or $1.80 a diluted share, more than double the $359 million, or 86 cents, in the year-earlier period. Analysts polled by First Call Corp. had expected Merrill to earn $1.39 a share.
Merrill's earnings follow a string of stellar fourth-quarter numbers from other U.S. banks and brokerages, many of which finished off calendar 1999 with bulging profits in the wake of record stock market gains and depressed year-earlier comparisons.
Fees earned from processing retail client trades and profits made by trading on their own accounts helped many brokerages involved in the equity markets last year to post record earnings.
Another record breaker
For Merrill in particular, IPO underwriting, robust activity in mergers and acquisitions and record trading activity all helped boost the company's bottom line, said David Komansky, the firm's chief operating officer.
Merrill is one of several advisers helping Germany's Mannesmann fend off Vodafone AirTouch PLC's $162.5 billion hostile bid late last year. The company also is currently advising drug maker Pfizer Inc. (PFE)'s unsolicited $73 billion offer to buy Warner-Lambert Co. (WLA).
Net revenue, which totals the firm's interest income and then subtracts it from its interest expenses, rose 44 percent to $5.9 billion from $4.1 billion. Annual return on common equity, which measures the company's performance for shareholders, jumped to 23.8 percent in the fourth quarter from 14.8 percent a year earlier.
Revenue from trading, known as principal transactions, more than tripled in the quarter, rising to $794 million from $211 million. As with its Wall Street rivals, Russia's 1998 debt crisis and currency devaluation and the worldwide market slump that followed made year-earlier comparisons unusually exaggerated.
Like other banks and brokerages, Merrill's Internet endeavors paid off in 1999 with the opening of Unlimited Advantage, one of two Internet ventures. Introduced in July, the service offers online trading and broker advice for a minimum annual fee of $1,500. And in December, it launched Merrill Lynch Direct, an online investing Web site.
Internet strategies paying off
The Internet initiatives appear to be paying off. At the end of the year, Merrill had a total of $151 billion in fee-based accounts, including what it held in both Unlimited Advantage and under Merrill Lynch Direct.
For all of 1999, income rose to a record $2.6 billion, or $6.17 a share, from $1.5 billion, or $3.71 a share, in 1998. Net revenue rose 25 percent to $21.87 billion.
Merrill Lynch shares rose 3-1/16 in mid-morning trading Tuesday to 78-3/4. 
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Merrill Lynch
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