Merrill Lynch and PaineWebber reported record-breaking quarterly earnings that significantly beat Street expectations, but investors stayed away from most names in the group.
"It?s not that the earnings weren?t positive," says Keefe Bruyette & Woods Inc. analyst Derek Statkevicus. "I think it was already priced into the market to a certain extent."
Merrill Lynch, the nation's largest brokerage, said profits were driven by a jump in fees for advising companies on mergers and takeovers, and by a lower tax rate. Merrill earned $673 million, or $1.57 per share, in the second quarter, up from $1.31 a share in the same quarter last year. The Street was predicting $1.46 a share.
Merrill?s fees jumped from both the first quarter and from the year-ago period as the worldwide merger boom continued. Fees from helping companies sell stock to investors nearly doubled from the first quarter and were sharply higher than a year ago, Merrill said in a press release. Merrill's tax rate was lower in the second quarter due to higher tax-exempt and non-U.S. income.
Merrill shares rose, despite the sudden announcement Monday that President and Chief Operating Officer Herbert Allison, Jr. is retiring from the company. Brown Brothers Harriman & Co. analyst Raymond Soifer said the earnings results and the retirement news were built into Tuesday?s share price.
PaineWebber reported the firm?s strongest quarterly earnings and revenues in its 119-year history. Net income for the period ended June was $163.5 million, or $1.02 per share, a 26% increase from a year ago. The results easily topped Street expectations of 94 cents a share. PaineWebber CEO Donald Marron said that, in addition to the healthy profits, "significant progress was also made in the development and implementation of the firm's online strategy."
In other sector news, online broker E*Trade announced a deal to acquire TIR Holdings Limited, an international financial-services company offering global currency and securities execution, and settlement services. The acquisition is expected to accelerate E*Trade?s goal of building the first global cross-border trading network for online investors, making trading in foreign securities accessible to retail, corporate and institutional investors alike, the company said in a press release. TIR shareholders will receive E*Trade common stock valued at approximately $122 million. MG
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