Merrill Lynch & Co., the nation’s largest brokerage, on Thursday said stronger acquisition advisory fees and gains from its private equity business pushed fourth-quarter profit up 68 percent to beat Wall Street expectations.
The New York-based company reported profit of $2.3 billion, or $2.41 per share, after preferred dividends. The profit was up sharply from $1.37 billion, or $1.41 per share, last year.
Bigger trading bets and an unprecedented period of acquisition activity helped revenue spike 27 percent to $8.61 billion compared to $6.79 billion in the year-ago period.
Merrill Lynch easily surpassed Wall Street expectations for a profit of $1.92 per share on revenue of $7.73 billion, according to analysts polled by Thomson Financial.
“By virtually any measure, our company completed the most successful year in its history,” said Chairman and Chief Executive Stan O’Neal in a statement. “We finished the year positioned better than ever to capitalize on the array of opportunities still emerging around the world as a result of what we believe are fundamental and long-term changes in how the global economy and capital markets are developing.”
Indeed, Merrill Lynch followed other Wall Street financial companies in posting record full-year results. Goldman Sachs Group Inc., Lehman Brothers Holdings Inc., Morgan Stanley Inc., and Bear Stearns Cos. all posted record results in 2006 — a period where acquisitions surpassed $4 trillion in deal value and the Dow Jones industrials soared to historic levels.
In 2006, it reported profit applicable to common stockholders rose 45 percent to $7.31 billion, or $7.59 per share, from $5.05 billion, or $5.16 per share, during the previous year. Revenue for the full year rose 33 percent to $34.66 billion from $26.02 billion in 2005.
The results are the strongest the company has recorded since the technology boom in 2000. Merrill beat Wall Street expectations for a profit of $5.94 per share on $8.4 billion of revenue.
Merrill Lynch’s 2006 results included a one-time gain from its deal to acquired a 49.8 percent stake in asset management company BlackRock Inc. However, this was essentially offset by one-time compensation costs associated with the deal that was recorded during the first quarter.
O’Neal, 55, has led the company through about 17 acquisitions since he took over the position of chairman and CEO from David Komansky in 2003. While many of its peers have merged into larger financial companies, Merrill Lynch has been selective about areas it focuses on — and its bread-and-butter brokerage business is the biggest in the industry.
In addition to BlackRock, Merrill Lynch in 2006 also bought boutique investment bank Petrie Parkman & Co. and home lender First Franklin Financial Corp.
During the fourth quarter, revenue derived from Merrill’s network of more than 15,000 retail brokers rose 13 percent to $3.3 billion. The global wealth management business reported revenue of $12.1 billion during the year, an increase of 12 percent.
Revenue at the firm’s global market and investment bank rose 55 percent to $5.4 billion in the fourth-quarter. Merrill also realized stronger revenue from underwriting bond and stock deals, fees from its private equity business, and proprietary trading.
Investment banking revenue rose 48 percent to $1.51 billion during the fourth quarter, up from $1.03 billion in the year-ago period. Results included a gain from a $748 million investment in rental-car company Hertz Global Holdings Inc., which Merrill helped take private and then brought public after listing shares on the New York Stock Exchange in November.
Principal transactions, the trading bets Merrill makes with its own money, rose $2.19 billion from $710 million last year.
Merrill’s asset-management revenue fell 20 percent to $1.31 billion. However, the drop is because the company now records results from this business as a line item in its global wealth management division.
Results from the company’s global investment management business, which includes its investment in BlackRock, rose 80 percent to $211 million during the quarter.
Merrill Lynch also raised its quarterly dividend 40 percent to 35 cents per share from 25 cents per share.