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Merrill Profits Soar on Deal

The BlackRock deal boosts the firm's earnings.

Updated from 8:05 a.m. (EDT)

Third-quarter earnings at

Merrill Lynch


surged 121% as the big Wall Street investment firm benefited from gains in trading revenue and the completion of its merger with asset-manager


(BLK) - Get BlackRock, Inc. Report


Net revenue rose 48% to $9.89 billion.

The just-completed deal with BlackRock, with which Merrill Lynch is combining some of its asset management business, added $1.97 billion in revenue in the quarter and juiced the quarter's bottom line by generating $1.1 billion in after-tax profit.

Even without the BlackRock deal, it still was an impressive quarter for the Wall Street firm.

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However, weak investment banking results could be a sign of future trouble for Wall Street.

Indeed, after trading higher in the morning, shares of Merrill Lynch were in the red by the afternoon. In early afternoon trading, the stock was down 14 cents to $83.97.

In the quarter, Merrill Lynch earned $3 billion, or $3.17 a share, up from $1.37 billion, or $1.40 a share. Excluding the impact of the BlackRock deal, Merrill Lynch earned $1.9 billion, or $2 a share.

On an operating basis, Merrill Lynch easily surpassed the Thomson Financial consensus estimate of $1.47 a share.

The firm's adjusted net revenue of $8.79 billion also was far ahead of the analyst estimate of $7.3 billion.

"This was a very good quarter," said Merrill Lynch Chairman and CEO Stan O'Neal. "All three of our business segments delivered solid year-over-year revenue and earnings growth in a business environment that was more challenging than the first half of the year."

The big revenue gains at Merrill Lynch, outside of the BlackRock deal, came from principal transactions, which includes trading and gains from private equity investments. Revenue from principal transactions rose 83% to $1.68 billion.

Asset management and portfolio fees rose 17% to $1.78 billion.

But there were a few chinks in the good news.

Revenue from investment banking work declined 3% from a year ago to $857 million. While fees from advising on corporate mergers were up 63% from a year ago, revenues from stock and bond underwriting fell 17% to $596 million. Revenue from commissions rose just 3% to $1.38 billion.

On a sequential basis, most of Merrill Lynch's major business lines reported a decline in revenue from the second quarter. Investment banking revenue was down 26% from the second quarter of this year. Commission revenue was down 13% on a sequential basis.