Merrill Posts Major Beat

Stock trading drives a big quarter.
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Updated from 8:24 a.m. EST

Merrill Lynch

(MER)

crushed Wall Street earnings expectations in the fourth quarter as the firm's stock-trading operations put up big numbers.

Merrill earned $1.50 billion, or $1.51 a share, in the quarter, compared with $1.19 billion, or $1.19 a share, a year ago. Net revenue rose to $6.78 billion from $5.91 billion a year ago. Analysts expected earnings of $1.30 a share on revenue of $6.67 billion in the 2005 quarter.

Merrill also raised its quarterly dividend to 25 cents from 20 cents.

The profit improvement was primarily driven by the capital markets and investment banking division, with most of the push coming from the equity business, which includes equity-linked trading, private equity, and cash equity trading. Fourth-quarter equity market net revenue rose 39% from a year ago.

Revenue in the investment banking business, despite Wall Street's hype, rose just 2% from the year-ago quarter, with declining equity and debt deals outweighing large fees in the merger and acquisition group.

Still, Jeff Edwards, Merrill's CFO, said on a post-earnings conference call that the investment banking pipeline for 2006 is the highest that Merrill has had since 2000. Despite the weak year for debt deals, particularly for Merrill, the first quarter pipeline shows debt transactions as the biggest money-maker.

Assets under management at Merrill also shot up, with assets in the global private client division increasing 8% in the fourth quarter to $1.5 trillion and assets in the Merrill Lynch Investment Managers division growing 9% to $544 billion.

"We finished the year at Merrill Lynch on a very strong note, with a compelling revenue performance and record earnings for both the fourth quarter and the full year," said Stan O'Neal, chairman and CEO of the company.

Merrill's stock rose $1.25, or 1.8%, to $71.10 at midday.

Merrill's strong earnings came after a string of Wall Street banks reported record growth in 2005.

Goldman Sachs

(GS) - Get Report

,

Lehman Brothers

(LEH)

, and

J.P. Morgan

(JPM) - Get Report

all reported impressive results last year, with most of the push coming from increased investment banking and capital markets business.

Unlike its traditional investment banking competitors, Merrill Lynch's strong private client and asset management divisions puts it in a larger competitive class, battling companies like TD Waterhouse and

Charles Schwab

(SCH)

for business assets under management. Despite many online trading brokerages increasing in assets acquired, Merrill's private client business didn't seem to blip. Revenue in global private client was up 10% for the year to $10.8 billion.

Merrill has other challenges in 2006 from more traditional investment banking competitors, such as Citigroup, who recently said it will be expanding into an online trading through its investment in OnTrade, Inc. While Edwards did not comment on specific acquisition targets or strategies, he did say, "Investing in our cash creating business from a technology perspective has been a focus."

The focus towards more electronic trading in the marketplace continues to drive the industry into looking at these types of opportunities, he said.