NEW YORK, Jan. 19 /PRNewswire/ -- Merrill Lynch & Co., Inc. (NYSE: MER)
today reported fourth quarter net earnings of $359 million, down 23% from last
year's fourth quarter. These results represent a $234 million increase from
1998 third quarter earnings of $125 million before a special provision for
costs related to staff reductions.
Earnings per common share were $.97 basic and $.86 diluted, compared with
$1.34 basic and $1.15 diluted in the 1997 fourth quarter and $.32 basic and
$.28 diluted in the 1998 third quarter, excluding the special provision.
Fourth quarter earnings on a cash basis, which exclude goodwill amortization,
were $420 million, or $1.01 per diluted share.
Earnings for 1998, excluding the special provision ($288 million
after-tax) and a $5 million after-tax charge for the cumulative effect of a
change in accounting principle, were $1.6 billion or $3.73 per diluted share,
down 20% from the $1.9 billion, or $4.79 per diluted share reported in 1997.
Including these one-time items, 1998 net earnings were $1.3 billion or $3.00
per diluted share.
Earnings on a cash basis before the one-time items were $1.8 billion, down
from $2.0 billion in 1997. On the same basis, diluted earnings per share were
$4.28 versus $4.95 in 1997.
Annualized return on average common equity was approximately 14.8% for the
1998 fourth quarter, and on a cash basis, 16.7%. Return on average common
equity was 16.5% for 1998 before the one-time items, and on a similar cash
basis, 18.4%.
Commenting on the year, Chairman and CEO David H. Komansky and President
and COO Herbert M. Allison Jr. said: "While adverse conditions in the global
debt markets kept us from another record year, we did achieve record
profitability in virtually all of our core businesses. Private Client assets,
assets under management, M&A advisory activity and global equity trading all
reached new highs, contributing to record revenues and profits in these areas,
and we're entering our second decade as the top global securities underwriter.
The cost reduction program we announced in October showed immediate results.
"We are continuing to create exceptional long-term value for our
shareholders and clients by investing to build a premier global brand in
financial services. We've never been in a better position to help our clients
and shareholders capitalize on the significant opportunities presented by a
more fully integrated and open global economy."
Highlights of recent activity follow:
-- Effective cost containment: As a result of the comprehensive cost
savings program initiated in the 1998 fourth quarter, non-compensation
expenses were down $271 million or 17% from 1998 third quarter levels,
excluding the special provision. These savings were significantly in
excess of targets. Staffing reductions outlined as part of the special
provision are on schedule, with savings to be realized primarily in
1999.
-- Record performance in investment banking: Merrill Lynch gained market
share in both US and non-US underwriting and retained its position as
the leading underwriter of total debt and equity securities for the
11th consecutive year in the US and 10th consecutive year globally.
The company also gained market share in its M&A advisory business,
ranking #1 and #2, respectively, in US completed and announced mergers
and acquisitions with market shares of 33.4% and 31.9%, according to
Securities Data Co. For the same period, the company also ranked #2 in
both global completed and announced mergers and acquisitions, with
market shares of 25.7% and 25.3%, respectively.
-- Record revenues in global equities: The global equities business
posted record 1998 net revenues of $3.8 billion, an increase of 30%
over 1997. Over 60% of equity trading revenues came from activities
outside the US, as Merrill Lynch gained market share in key markets
throughout Europe and Asia.
-- A new high in client assets: Client assets reached $1.4 trillion at
year-end 1998, a $213 billion increase from year-end 1997. The net
inflow of new client assets averaged over $375 million each business
day during 1998.
-- Record gains in assets under management: Assets under management were
up $53 billion, or 12%, in 1998 and surpassed the $500 billion level.
Starting in July 1998, Mercury Asset Management expanded its global
presence by raising more than $1 billion in mutual fund assets through
Merrill Lynch Financial Consultants worldwide. New product offerings
included 17 mutual funds in Japan and two Mercury funds in the US.
-- Divestitures and acquisitions: Merrill Lynch completed the sale of its
New York Stock Exchange specialist business for a $49 million after-tax
gain, and completed the previously announced acquisition of Howard
Johnson & Co., a leading US benefits consulting and actuarial firm.
4th Quarter Revenues
Net revenues rose 2% from the 1997 fourth quarter to $4.1 billion,
primarily due to strong revenues from asset management and portfolio service
fees, commissions, and near record strategic services fees.
Commission revenues were $1.4 billion, up 9% from the 1997 fourth quarter,
primarily as a result of increases in global listed securities volume.
Principal transactions revenues declined 66% from a year ago to
$211 million. Debt trading revenues remained under pressure, as certain
inventory positions were reduced during the quarter. Continuing wide credit
spreads and reduced liquidity, particularly in October, contributed to losses
in corporate and high-yield bonds and mortgage-backed securities. Revenues
from interest rate and currency swaps also declined. Equities and equity
derivatives revenues rose sharply from the 1997 fourth quarter.
Investment banking revenues decreased 4% to $824 million. Strategic
services fees benefited from strong merger and acquisition activity. A
slowdown of new issuance resulting from global market volatility led to lower
underwriting revenues, particularly from equity and high-yield products.
Merrill Lynch was the leading equity underwriter during the quarter, with
common equity market share more than doubling from the 1998 third quarter.
Asset management and portfolio service fees were $1.0 billion, up 29% from
the 1997 fourth quarter. Continued growth in assets under management,
primarily driven by the acquisition of Mercury Asset Management and by
fee-based products such as Merrill Lynch Consults(R), Mutual Fund Advisor(SM),
and Financial Advantage(SM), led to the increase. During the fourth quarter,
funds increased by $18.1 billion at Merrill Lynch Asset Management and
$15.9 billion at Merrill Lynch Mercury Asset Management, as both experienced
net cash inflows in addition to market appreciation.
On an annualized basis, fee-based revenues now cover over 70% of fixed and
semi-fixed expenses, up from 65% for full-year 1997.
Other revenues increased 64% from a year ago to $256 million, primarily as
a result of a $100 million gain from the sale of Merrill Lynch's New York
Stock Exchange specialist business. Net interest profit increased 21% to
$320 million due in part to an overall reduction in funding costs.
4th Quarter Expenses
Non-interest expenses increased 9% from the 1997 fourth quarter to
$3.6 billion, but were down 2% from the 1998 third quarter, excluding the
special provision. Non-compensation expenses significantly benefited from
cost savings initiatives, and were down $271 million, or 17%, from the 1998
third quarter, excluding the special provision.
Compensation and benefits, the largest expense category, was up 8% to
$2.2 billion, with over 60% of this increase attributable to new operations
outside the US, including Mercury Asset Management and Merrill Lynch Japan
Securities. Also contributing to the increase were higher Financial
Consultant productivity and increased salary and benefit costs, partly offset
by lower incentive compensation.
Communications and technology expense rose 31% from the 1997 fourth
quarter to $438 million. Increased systems consulting costs associated with
the Year 2000 and European Monetary Union initiatives, higher
technology-related depreciation and expanded use of market data services
contributed to this advance. Occupancy and related depreciation increased
19% to $222 million as a result of global expansion, primarily in Japan and
Europe.
Advertising and market development expense was down 32% to $107 million,
due in part to reductions in global travel, sales promotion, and recognition
program costs. Brokerage, clearing, and exchange fees rose 23% to
$174 million, primarily attributable to custody and clearing costs for Merrill
Lynch Mercury Asset Management. Professional fees decreased 24% to
$93 million because of lower management consulting costs and legal and
employment services fees.
Goodwill amortization increased $42 million from the 1997 fourth quarter
to $61 million, primarily as a result of the Mercury Asset Management
acquisition. Other expenses were down 5% to $249 million.
The 1998 fourth quarter effective tax rate was 22.8%, compared with
34.6% a year ago, due primarily to the recognition of tax benefits for
cumulative losses incurred in connection with the start-up of the new Private
Client business in Japan. The annual effective tax rate was 34.1%.
Net earnings for 1998 also included the effect of early adoption of a
change in accounting principle related to distribution costs for closed-end
mutual funds. This change included a $5 million cumulative effect retroactive
to the beginning of 1998 and an $11 million after-tax reduction of 1998
earnings for costs that previously were deferred and are now expensed.
Previously reported 1998 quarterly results have been restated.
Merrill Lynch & Co., Inc.
Preliminary Unaudited Earnings Summary
For the Three Months Ended Percent Inc/(Dec)(3)
Dec. 25, Sept. 25,(1) Dec. 26,(2) 4Q98 vs. 4Q98 vs.
1998 1998 1997 3Q98 4Q97
(in millions,
except per
share amounts)
Revenues
Commissions $1,424 $1,449 $1,304 (1.7)% 9.2%
Interest and
dividends 4,411 5,079 4,565 (13.1) (3.4)
Principal
transactions 211 279 615 (24.3) (65.7)
Investment
banking 824 711 862 15.9 (4.4)
Asset management
and portfolio
service fees 1,046 1,043 809 0.3 29.3
Other 256 151 156 69.2 63.7
Total Revenues 8,172 8,712 8,311 (6.2) (1.7)
Interest
expense 4,091 4,863 4,301 (15.9) (4.9)
Net Revenues 4,081 3,849 4,010 6.0 1.8
Non-Interest
Expenses
Compensation
and benefits 2,218 2,009 2,052 10.4 8.1
Communications
and technology 438 487 335 (10.1) 31.0
Occupancy and
related
depreciation 222 227 187 (2.2) 18.5
Advertising and
market
development 107 203 158 (47.2) (32.1)
Brokerage,
clearing,
and exchange
fees 174 186 142 (6.6) 22.6
Professional
fees 93 165 121 (43.7) (23.8)
Goodwill
amortization 61 55 19 9.6 N/M
Provision for
costs related
to staff
reductions - 430 - N/M N/M
Other 249 292 261 (14.8) (4.5)
Total Non-
Interest
Expenses 3,562 4,054 3,275 (12.2) 8.8
Earnings (Loss)
Before Income
Taxes and Dividends
on Preferred
Securities Issued
by Subsidiaries 519 (205) 735 N/M (29.4)
Income tax
expense
(benefit) 119 (75) 254 N/M (53.4)
Dividends on
preferred securities
issued by
subsidiaries 41 33 12 27.7 235.3
Net Earnings
(Loss) $359 ($163) $469 N/M (23.4)
Preferred stock
dividends $10 $10 $10 - -
Net Earnings
(Loss) Applicable
to Common
Stockholders $349 ($173) $459 N/M (23.9)
Earnings (Loss)
per Common Share
Basic $0.97 ($0.48) $1.34 N/M (27.6)
Diluted $0.86 ($0.48) $1.15 N/M (25.2)
Average Shares
Basic 359.9 357.6 342.7 0.6 5.0
Diluted 404.9 357.6 400.1 13.2 1.2
(1) Amounts have been restated to reflect the early adoption of a change
in accounting principle related to distribution costs for closed-end
mutual funds.
(2) Amounts have been restated to reflect the Midland Walwyn Inc. merger
as required under pooling-of-interests accounting.
(3) Percentages are based on actual numbers before rounding.
Note: Certain revenues have been reclassified to conform to the current
presentation.
N/M Not meaningful.
Merrill Lynch & Co., Inc.
Preliminary Unaudited Earnings Summary
For the Year Ended
Dec. 25, Dec. 26,(1) Percent(2)
1998 1997 Inc / (Dec)
(in millions, except
per share amounts)
Revenues
Commissions $5,799 $4,995 16.1%
Interest and dividends 19,314 17,299 11.6
Principal transactions 2,651 3,827 (30.7)
Investment banking 3,264 2,876 13.5
Asset management and
portfolio service fees 4,202 3,002 40.0
Other 623 500 24.6
Total Revenues 35,853 32,499 10.3
Interest expense 18,306 16,243 12.7
Net Revenues 17,547 16,256 7.9
Non-Interest Expenses
Compensation and benefits 9,191 8,333 10.3
Communications and technology 1,749 1,255 39.4
Occupancy and related
depreciation 867 736 17.9
Advertising and market
development 687 613 12.1
Brokerage, clearing,
and exchange fees 683 525 30.0
Professional fees 552 520 6.1
Goodwill amortization 226 65 246.0
Provision for costs related
to staff reductions 430 - N/M
Other 1,057 1,098 (3.7)
Total Non-Interest Expenses 15,442 13,145 17.5
Earnings Before Income Taxes,
Dividends on Preferred Securities
Issued by Subsidiaries, and
Cumulative Effect of Change
in Accounting Principle 2,105 3,111 (32.4)
Income tax expense 717 1,129 (36.5)
Dividends on preferred securities
issued by subsidiaries 124 47 161.1
Earnings Before Cumulative Effect
of Change in Accounting Principle 1,264 1,935 (34.7)
Cumulative effect of change
in accounting principle 5 - N/M
Net Earnings $1,259 $1,935 (34.9)
Preferred stock dividends $39 $39 (2.4)
Net Earnings Applicable
to Common Stockholders $1,220 $1,896 (35.6)
Earnings per Common Share
Basic $3.43 $5.57 (38.4)
Diluted $3.00 $4.79 (37.4)
Average Shares
Basic 355.6 340.1 4.6
Diluted 406.3 395.9 2.6
(1) Amounts have been restated to reflect the Midland Walwyn Inc. merger
as required under pooling-of-interests accounting.
(2) Percentages are based on actual numbers before rounding.
Note: Certain revenues have been reclassified to conform to the current
presentation.
N/M Not meaningful.
SOURCE Merrill Lynch & Co., Inc.
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CONTACT:
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& Co., Inc.
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