Updated from 8:24 a.m. EDT
, the nation's biggest brokerage, posted sharply higher profits in the second quarter, and for the first time since the bull market also posted significantly higher revenue.
The Wall Street firm earned just over $1 billion, or $1.05 a share, in the quarter, compared with $634 million, or 66 cents a share, a year ago.
The 61% gain in net income far surpassed the expectations of most on Wall Street. The Thomson First Call consensus estimate had called for the firm to earn 72 cents a share in the quarter.
In early trading, Merrill shares were up $1.84, or 3.6%, to $53.25, which is a new 52-week for the stock and quite a recovery from the pounding the stock took last year.
The strong results were fueled by sharp gains in revenues from bond and proprietary trading, and fees from bond underwriting. In all, the firm took in $5.3 billion in total net revenues, a gain of 7.4% over a year ago.
Revenues from bond trading and proprietary trading have been the main salvation for Wall Street firms this year.
The revenue gains at Merrill may be an indication the firm is finally turning the corner. For much of the past year, Merrill's profit gains have been fueled mainly by savings from cost-cuts.
In fact, in many quarters, revenue at the firm have been either flat or fallen slightly. In the first quarter, for instance, Merrill reported a 6% rise in first-quarter profits, even as net revenues fell 5% from year ago levels.
Still, cost-cuts did play a factor in Merrill's blow-out numbers. Total non-interest expenses at the firm declined in the quarter by 3.7% to $3.85 billion.
And the firm continues to shed jobs. At quarter's end, Merrill employed 48,300, or 1,300 fewer people than at the end of the first quarter. From the start of the bear market, Merrill has been one of the most aggressive Wall Street firms in cutting staff. The firm is roughly 30% smaller than at the start of the bear market.
On the revenue side, principal transactions -- largely gains from bond trading -- were the firm's meal ticket. In the quarter, revenue from these trades rose 51% to $1.1 billion. Fees from stock and bond underwriting activity rose 13% to $565 million.
Brad Hintz, a brokerage analyst at Sanford Bernstein, said Merrill posted "spectacular'' revenues from fixed-income trading. But what impressed him the most were indications that "investment banking numbers are picking up,'' something that bodes well not just for Merrill but all of Wall Street.
A continuing weak spot for the firm remains fees from commissions. Despite the resurgent stock market, revenue from commission fell 14% to $1 billion. Commissions were even down slightly compared to the first quarter, when the most investors were still sitting in the bearish camp.
Brokerage analyst Reilly Tierney of Fox Pitt-Kelton said even though it was a "pretty good quarter'' for Merrill, he was disappointed in the revenues from trading commissions. He said "commissions were way lower than I thought they would be'' and seemed at odds with the recent stock market revival.
In fact, commission revenues in the quarter were down across the board. Commissions from stock trading came in at $617 million, down 14% from a year ago. Mutual fund sales commissions were off 28% to $234 million.
The only revenue gains came in a category of commission that Merrill describes as "other.'' Those rose 15% to $193 million.
The trouble for Merrill Lynch is the third quarter traditionally is a slow time on Wall Street and it's doubtful that the firm will be able to post any significant gains in commission revenue.