Background
Merrill Lynch is one of the world’s leading financial management and advisory companies, with offices in 38 countries and total client assets of approximately $1.5 trillion. As an investment bank, Merrill Lynch is a leading global underwriter of debt and equity securities and strategic advisor to corporations, governments, institutions and individuals worldwide. Through Merrill Lynch Investment Managers, the firm is one of the world’s largest managers of financial assets. (Merrill Lynch, 2002)
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries and affiliates, provides investment, financing, advisory, insurance and related products and services on a global basis, including securities brokerage, trading and underwriting; investment banking, strategic services, including mergers and acquisitions and other corporate finance advisory activities; asset management; origination, brokerage, dealer and related activities in swaps, options, forwards and exchange-traded futures; other derivatives and foreign exchange products; securities clearance and settlement services; equity, debt, foreign exchange, commodities and economic research; banking, trust and lending services, including mortgage lending and related services; insurance sales and underwriting services, and investment advisory and related recordkeeping services. Merrill Lynch provides these products and services to a wide array of clients, including individual investors, small businesses, corporations, governments, governmental agencies and financial institutions.
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Merrill Lynch’s business has three business segments, the Corporate and Institutional Client Group (CICG), the Private Client Group (PCG) and Merrill Lynch Investment Managers (MLIM).
Merrill Lynch provides financial services worldwide through various subsidiaries and affiliates that frequently participate in the facilitation and consummation of a single transaction. This organizational structure is designed to enhance the delivery of services to Merrill Lynch’s diverse global client base and position it for worldwide growth. Merrill Lynch has organized its operations outside the United States into five regions, Europe, Middle East, and Africa; Japan; Asia Pacific/Australia; Canada, and Latin America. (Multex, 2002).
Business Segments
Corporate and Institutional Client Group
The CICG businesses provide comprehensive investment banking, financing and related products and services to corporations, institutional clients and sovereign governments throughout the world. These activities are conducted through a network of subsidiaries, including Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S), Merrill Lynch International (MLI) and a number of other subsidiaries located in and outside the United States. CICG’s activities predominately involve providing investment banking and other strategic mergers and acquisition advisory services; underwriting; trading, both as a broker and as a dealer, in equity securities, including common stock, preferred stock, American depositary receipts and other equity linked securities, debt securities, including investment grade, high yield, tax-exempt, asset backed, commercial paper and other short-term instruments and derivative instruments; publishing and disseminating equity, debt, foreign exchange and economic research products and services; corporate lending, including syndicated and bridge financing, and providing various other capital markets services, including securities clearance activities. (Multex, 2002).
The Private Client Group
Through offices around the world, PCG provides products and services related to the accumulation and management of wealth. Some of these include brokerage, dealer and related activities; banking; retirement, investment and custody services; business financial services; insurance, and trust services, mortgage lending and related activities.
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In the United States, MLPF&S is a broker and a dealer for individual, corporate, institutional and governmental clients in the purchase and sale of corporate securities, primarily equity and debt securities traded on exchanges or in the over-the-counter markets. MLPF&S also acts as a broker and a dealer in the purchase and sale of money market instruments, government securities, high-yield bonds, municipal securities, futures and options. In addition, MLPF&S acts as broker and/or mutual fund selected dealer in the purchase and sale of mutual funds. (Multex, 2002).
Merrill Lynch Investment Managers
During 2000, the various names used to conduct Merrill Lynch’s asset management activities were rationalized and are now principally conducted through the MLIM brand name. The principal subsidiaries engaged in these activities are Merrill Lynch Investment Managers LP (MLIM LP) and Merrill Lynch Investment Managers Limited (MLIM Ltd.).
MLIM has total assets under management of approximately $557 billion at year-end 2000.
With portfolio managers located in the United States, the United Kingdom, Japan, Australia, Canada, Switzerland, Italy and Singapore, MLIM manages a wide variety of investment products. These range from money market funds and other forms of short-term fixed-income investments, to long-term taxable and tax-exempt fixed-income funds or portfolios, along a broad spectrum of quality ratings and maturities. MLIM also manages a wide variety of equity and balanced funds or portfolios that invest in more than 60 markets globally. In 2000, MLIM began to offer a variety of alternative investment products. (Multex, 2002).
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Competitive Position Within Industry
Top competitors of Merrill Lynch include Citigroup, Goldman Sachs, and Morgan Stanley Dean Witter. Merrill Lynch was once the undisputed leader of the financial companies group. Now it finds itself in a close fight for dominance with fellow retail/wholesale financial supermarket Morgan Stanley Dean Witter. Its Private Client Group provides retail brokerage, trust services, and mutual funds, as well as life insurance and annuities. Its Corporate and Institutional Client Group offers investment banking, brokerage, and clearing services to corporate and government clients. The firm also provides asset management. The September 11 terrorist attacks and a weak economy forced Merrill Lynch to streamline in 2001; the firm cut more than 10,000 workers and scaled down all international operations. (MoneyCentral, 2002).
Financials
(Merrill Lynch, 2002a)
For the first-quarter of 2002 Merrill Lynch has reported net earnings of $647 million, 26% lower than the first quarter of 2001 and 32% higher than the 2001 fourth-quarter net operating earnings1. Earnings per common share were 75 cents basic and 67 cents diluted, compared with $1.04 basic and 92 cents diluted in the 2001 first quarter and 57 cents basic and 51 cents diluted on a net operating basis in the fourth quarter of 2001.
The pretax profit margin for the quarter was 19.9%, an increase of nearly five percentage points from the 2001 fourth-quarter operating results and only one percentage point below the year-ago quarter in spite of a 21% decline in net revenues over the same period. Non-interest expenses declined nearly $1 billion from the 2001 first quarter. Non-compensation expenses were reduced by 18% from the fourth quarter 2001 operating results, and by 21% from the year-ago quarter. Annualized return on average common stockholders’ equity in the first quarter of 2002 was 12.7%. (Merrill Lynch, 2002b)
