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Brokers post mixed 2Q
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July 18, 2000: 8:07 a.m. ET
Merrill easily tops forecast; DLJdirect loss widens, Schwab meets estimates
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NEW YORK (CNNfn) - Merrill Lynch handily beat Wall Street's second-quarter forecast Tuesday. But market volatility hurt DLJdirect, which posted a wider-than-expected loss and Charles Schwab Corp., which just matched estimates.
Merrill Lynch & Co.
Merrill Lynch & Co. reported second-quarter earnings that handily beat Wall Street's expectations and announced a 2-for-1 stock split.
The nation's largest brokerage firm reported net earnings of $902 million, or $2.01 a share, up from $673 million, or $1.57 a share, a year earlier. That beat the $1.70 consensus forecast of analysts surveyed by earnings tracker First Call.
Net revenue rose 23 percent to $6.7 billion.
 "This performance underscores the diversity of our global franchise, with our corporate and institutional client business showing particular strength worldwide," Chairman David Komansky said.
Mark Constant, a Lehman Brothers analyst, said he was encouraged by the company's growth in Asia and its reassurances during a conference call with analysts that it expected improved inflows from clients as their tax payments slowed.
The company stated in its earnings that clients' tax payments prompted a reduction in inflows. Investors reacted to that news, selling off Merrill's (MER: Research, Estimates) shares, which dropped 2-25/32 to 129-3/16 in late trading Tuesday.
Net revenue in its corporate and institutional client group rose 33 percent to $3.2 billion, marked by strong results in trading, equity derivatives and equity underwriting, Merrill said.
During the quarter, Merrill acted as joint manager for AT&T's (T: Research, Estimates) Wireless initial public offering of 360 million shares of tracking stock and Solectron's (SLR: Research, Estimates) $3.5 billion bond issue.
The company also advised food and consumer goods maker Bestfoods (BFO: Research, Estimates) in its acquisition of Unilever (UL: Research, Estimates).
For the first six months, New York-based Merrill posted net earnings of $1.9 billion, or $4.38 a diluted share, up from $1.3 billion, or $3.02 a share, a year earlier. Net revenue rose to $13.9 billion from $10.7 billion.
The results come a week after Merrill said it is considering cutting 2,000 jobs, or 3 percent of its work force, as a possible cost-cutting measure in its brokerage division.
DLJdirect posts wider loss
The online brokerage arm of Donaldson Lufkin and Jenrette reported a net loss for the second quarter of $6.6 million, or 6 cents a share, compared with net income of $5.1 million, or 5 cents a share, a year ago.
 Wall Street analysts had expected Jersey City, N.J.-based DLJdirect (DIR: Research, Estimates), the fourth-largest online broker, to post a net loss of 3 cents a share, according to First Call.
Revenue for the quarter grew 40 percent to $84 million from $60 million.
While daily trading volume increased 62 percent year-to-year and active accounts increased 69 percent, market volatility in the last three months had an impact on earnings, the company said.
Commissions totaled $45.5 million in the second quarter, a 27 percent increase over the year-earlier quarter, but a 39 percent decrease from the first quarter.
Expenses totaled $91.9 million, compared with $48.8 million a year earlier, which the company attributed to investments in marketing and advertising, hiring and technology.
"This is the fourth year we've seen a downturn in customer activity at one point in the year and usually it's lasting two to four months, and we're not overly concerned about that. But clearly, it's a competitive marketplace," Blake Darcy, DLJdirect's chief executive officer told CNNfn's Market Coverage program Tuesday. [373K WAV] [373K AIFF]
"We are continuing to build our franchise both domestically and internationally," DLJdirect President Glenn Tongue said. "The online brokerage industry is still in its early stages in terms of worldwide customer penetration. We are making significant investments to ensure that DLJdirect remains the highest-quality, lowest-cost provider of electronic brokerage services worldwide."
Alan Weichselbaum, an analyst with Gerard Klauer Mattison & Co., said the reported loss for the quarter did not overly concern him. He believes investors are still interested in trading over the Internet, but market volatility over the last three months has kept volume down.
I think that their expenses are pretty much set. All their line items are pretty much set in stone. Management is really in control," Weichselbaum said. "The real question is going to be what happens with the trading volumes."
Weichselbaum also noted that the company has hired about 400 people in part to bolster customer service and said its recent acquisition of iNautix Technologies positioned them to further bolster revenue.
INautix develops and customizes financial services Web sites for corporations. More than 300 financial services firms use its products.
DLJdirect shares fell 3/4 to 7-11/16 on the New York Stock Exchange Tuesday.
Charles Schwab Corp.
San Francisco-based Charles Schwab Corp. posted second-quarter operating income of $199 million, or 14 cents a share, up from $171 million, or 12 cents a share, a year earlier.
Schwab (SCH: Research, Estimates) matched Wall Street's consensus forecast, according to First Call.
 Revenue totaled $1.40 billion, compared with $1.12 billion a year ago.
For the first six months, the company posted operating income of $522 million, or 37 cents a share, compared with $332 million, or 24 cents a share, a year earlier.
Revenue grew to $3.13 billion from $2.20 billion for the comparable period last year.
The results exclude about $47 million in fees related to its acquisition of U.S. Trust Corp.
Schwab stock rose 1-5/16 to 38-9/16 in trading Tuesday. 
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Merrill Lynch
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