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Merrill Lynch Reports Second Quarter 2008 Net Loss from Continuing Operations of $4.6 Billion
Merrill Lynch Completes Sale of Bloomberg and Announces Expected Sale of Financial Data Services in Deals Valued at Approximately $8 Billion in Aggregate
NEW YORK, Jul 17, 2008 (BUSINESS WIRE) -- Merrill Lynch (NYSE: MER) today reported a net loss from
continuing operations for the second quarter of 2008 of $4.6 billion,
or $4.95 per diluted share, compared to net earnings from continuing
operations of $2.0 billion, or $2.10 per diluted share, for the second
quarter of 2007. Merrill Lynch's net loss for the second quarter of
2008 was $4.7 billion, or $4.97 per diluted share, compared to net
earnings of $2.1 billion, or $2.24 per diluted share, for the year-ago
quarter. Second quarter 2008 results included a restructuring charge
of $445 million pre-tax ($286 million after-tax) arising from
headcount reductions completed during the quarter.
Subsequent to the end of the second quarter, Merrill Lynch
continues to enhance its capital position. Earlier today, Merrill
Lynch completed the sale of its 20% ownership stake in Bloomberg, L.P.
to Bloomberg Inc., for $4.425 billion, and as part of this transaction
has entered into a long-term service agreement. Merrill Lynch is also
in negotiations and has signed a non-binding letter of intent to sell
a controlling interest in Financial Data Services, Inc. (FDS), based
on an enterprise value for FDS in excess of $3.5 billion. FDS is
currently a wholly-owned subsidiary of Merrill Lynch and is a provider
of administrative functions for mutual funds, retail banking products
and other services within Global Wealth Management (GWM). Merrill
Lynch has provided Bloomberg Inc. with debt financing and intends to
provide debt financing for the FDS transaction on a commercially
reasonable basis.
Amidst a challenging market environment, Merrill Lynch's core
businesses continued to perform well; however, second quarter 2008 net
revenues were negative $2.1 billion, compared with positive $9.5
billion in the prior-year period. The revenue decline was driven by
net losses totaling $3.5 billion related to U.S. super senior ABS
CDOs(1) and credit valuation adjustments of negative $2.9 billion
related to hedges with financial guarantors, about half of which
related to U.S. super senior ABS CDOs. Other significant net losses
included $1.7 billion in the investment portfolio of Merrill Lynch's
U.S. banks, as well as $1.3 billion from certain residential mortgage
exposures. Active efforts to reduce risk through asset sales combined
with these net losses, resulted in meaningful exposure reductions for
many of these asset classes.
Net revenues for the second quarter were $7.5 billion, excluding
these net losses, credit valuation adjustments and a $91 million net
benefit related to credit spread widening on Merrill Lynch's long-term
debt liabilities. On a comparable basis, these revenues were down 21%
from the prior-year period but up slightly from the first quarter of
2008, reflecting the strength and stability of the firm's core
franchise. (2)
The net loss from continuing operations for the first six months
of 2008 was $6.6 billion, or $7.17 per diluted share, compared with
net earnings from continuing operations of $4.0 billion, or $4.22 per
diluted share, in the prior-year period. The first half 2008 net loss
and loss per diluted share were $6.6 billion and $7.18, respectively,
compared to net earnings of $4.3 billion, or $4.50 per diluted share,
for the prior-year period. First half 2008 net revenues were $818
million compared to $19.1 billion in the prior-year period. Excluding
the net losses, credit valuation adjustments and a $2.2 billion net
benefit related to credit spread widening on Merrill Lynch's long-term
debt liabilities, first half 2008 net revenues were $14.9 billion,
down 22% from the prior-year period. (2)
Second Quarter and First Half 2008 Highlights
-- Record first half revenues in Rates and Currencies and
third-highest quarterly revenues
-- Record first half and quarterly revenues in Global Markets
Financing and Services, demonstrating double-digit growth,
both year-on-year and sequentially
-- Nearly 60% growth in Commodities quarterly revenues compared
to the prior-year
-- Strong Investment Banking revenues of more than $1 billion for
the quarter, where the firm ranked #3 globally for debt and
equity origination fees (3)
(1) ABS CDOs are defined as collateralized debt obligations
comprised of asset-backed securities.
(2) See Attachment VIII for a reconciliation of non-GAAP measures.
(3) Source: Dealogic.
-- Continued solid revenues in GWM, with recurring revenues
greater than 70% of total net revenues, a near-record
proportion (1)
-- Non-U.S. revenue growth of 13% sequentially during the quarter
driven by strong performance in the Europe, Middle East and
Africa ("EMEA") region, up more than 30% (2)
-- Significant progress in balance sheet and risk reduction
during the quarter, including reductions of 51% in U.S. Alt-A
residential mortgages and 29% in U.S. sub-prime residential
mortgage net exposures, 47% in leveraged finance, and 17% in
commercial real estate net exposures, excluding First Republic
Bank
-- Record excess liquidity pool of approximately $92 billion, up
significantly from the first quarter of 2008
"Our core franchise continues to perform well despite the
extremely challenging market environment," said John A. Thain,
chairman and chief executive officer. "Against this backdrop, we
increased our excess liquidity pool to a record level of $92 billion
and significantly reduced our exposures in key asset classes.
Importantly, with the transactions we announced today, we are
bolstering our capital base and continue to move forward on our risk
management and strategic growth initiatives."
Business Segment Review:
The $445 million pre-tax restructuring charge was recorded in the
business segments as follows: $311 million in Global Markets and
Investment Banking and $134 million in Global Wealth Management. The
following discussion of business segment results excludes the impact
of these restructuring expenses. A reconciliation of these segment
results appears on Attachment III to this release.
Global Markets and Investment Banking (GMI)
GMI recorded net revenues of negative $5.3 billion and a pre-tax
loss of $8.2 billion for the second quarter of 2008, as the
challenging market environment resulted in net losses in Fixed Income,
Currencies and Commodities (FICC), and lower net revenues in Equity
Markets and Investment Banking compared to the prior-year period.
GMI's second quarter net revenues included a net benefit of $98
million (all of which was recorded in FICC) due to the impact of the
widening of Merrill Lynch's credit spreads on the carrying value of
certain long-term debt liabilities.
(1) Recurring revenues include fee-based revenues, net interest
profit and Global Investment Management (GIM) revenues.
(2) Ex-marks and fair value adjustments.
-- Net revenues from GMI's three major business lines were as
follows:
-- FICC net revenues were negative $8.1 billion for the quarter,
as strong revenues from Commodities, Rates and Currencies and
Municipals were more than offset by net losses related to U.S.
super senior ABS CDOs, credit valuation adjustments related to
hedges with financial guarantors, and net losses related to
the investment securities portfolio of Merrill Lynch's U.S.
banks and certain residential mortgage-related exposures. To a
lesser extent, FICC revenues were also impacted by net losses
related to leveraged finance exposures. Net revenues for most
other FICC businesses declined from the second quarter of
2007, as the environment for those businesses was materially
worse than the year-ago quarter.
U.S. ABS CDOs:
At the end of the second quarter of 2008, net exposures to U.S.
ABS CDOs were $4.5 billion, down from $6.7 billion at the end of the
first quarter of 2008. The net exposure declined as net losses of $3.5
billion, and to a lesser extent asset sales and liquidations, were
partially offset by the ineffectiveness of certain hedges. Please see
Attachment VI for details related to these exposures.
Financial Guarantors:
During the second quarter of 2008, credit valuation adjustments
related to the firm's hedges with financial guarantors were negative
$2.9 billion, including negative $1.4 billion related to U.S. super
senior ABS CDOs.
The hedges with financial guarantors related to the U.S. super
senior ABS CDOs (notional, net of gains prior to credit valuation
adjustments) declined from $10.9 billion at the end of the first
quarter 2008 to $9.6 billion at the end of the second quarter 2008.
The net gains in the value of the hedges (reflective of value declines
in the assets being hedged) were more than offset by credit valuation
adjustments that reflected deterioration of the creditworthiness of
the financial guarantors during the quarter. As a result, the carrying
value of these hedges related to U.S. super senior ABS CDOs was $2.9
billion at quarter-end. Please see Attachment VI for details related
to these hedges.
The carrying value of hedges with financial guarantors related to
other asset classes outside of U.S. super senior ABS CDOs declined
from $5.1 billion at the end of the first quarter to $3.6 billion at
the end of the second quarter 2008.
Residential Mortgages:
Net exposures related to U.S. prime residential mortgages
increased 10% to $33.7 billion during the quarter, as GWM's First
Republic Bank continued to originate mortgages for its high net worth
client base. However, other residential mortgage-related exposures,
including U.S. sub-prime, U.S. Alt-A and non-U.S. exposures, in
aggregate, decreased 25% during the quarter. U.S. sub-prime
mortgage-related exposures declined 29% to $1.0 billion, primarily due
to $544 million in markdowns. Net exposures related to U.S. Alt-A
residential mortgages declined 51% to $1.5 billion, due to sales of
$1.1 billion and net losses of $549 million. Net exposures related to
non-U.S. residential mortgages declined 15% to $7.4 billion due to the
maturity of a warehouse lending facility, net write-downs of $229
million, paydowns of principal and sales of mortgage-backed
securities. Please see Attachment VII for details related to these
exposures.
U.S. Banks Investment Securities Portfolio:
Within the investment securities portfolio of Merrill Lynch's U.S.
banks, net pre-tax losses of approximately $1.7 billion were
recognized through the statement of earnings during the second quarter
of 2008. These net losses reflected the other than temporary
impairment in the value of certain securities, primarily U.S. Alt-A
residential mortgage-backed securities. The change in other
comprehensive income / (loss) (OCI) during the quarter reflected the
reversal of approximately $1.7 billion of pre-tax losses out of OCI,
partially offset by an additional $979 million pre-tax loss recorded
in OCI. At the end of the quarter, the cumulative pre-tax OCI balance
in stockholders' equity related to this portfolio was approximately
negative $4.7 billion. Please see Attachment VII for details related
to these exposures.
Leveraged Finance:
During the second quarter of 2008, leveraged finance commitments
declined 47% to $7.5 billion, down from approximately $14.2 billion at
the end of the first quarter, due almost entirely to sales and
syndications. Net write-downs related to these exposures were $348
million during the quarter.
Commercial Real Estate:
Second quarter 2008 net exposures related to commercial real
estate, excluding First Republic Bank, totaled approximately $14.9
billion, down 17% from the first quarter, due primarily to sales,
particularly for whole loan/conduit exposures in the U.S. and EMEA.
Net exposures related to First Republic Bank were $2.7 billion at the
end of the second quarter, up 3% from the first quarter. Please see
Attachment VII for details related to these exposures.
-- Equity Markets net revenues for the second quarter of 2008
declined 20% from the prior-year quarter to $1.7 billion.
Global Markets Financing and Services revenues increased to a
record level, up approximately 25% from the prior-year period,
as the firm took advantage of opportunities to both add
clients and increase average balances. Cash equity trading
revenues were up slightly from the prior-year period. These
increases were more than offset by net revenue declines from
equity-linked trading and principal-related businesses,
including private equity, which recorded a net loss of $184
million, down from positive revenues of $125 million in the
prior-year quarter.
-- Investment Banking net revenues were $1.0 billion for the
second quarter of 2008, down 28% from the record 2007 second
quarter. Equity origination, debt origination and M&A advisory
revenues all declined, reflecting significantly lower
industry-wide deal volumes compared with the year-ago period.
While origination revenues were lower, Merrill Lynch
maintained strong positioning, ranking #3 in the global league
table for fees from debt and equity origination, and recently
advised on several industry-leading transactions, including
the $18 billion acquisition of Rohm & Haas by Dow Chemical and
the $13 billion acquisition of Norilsk Nickel by Rusal, and
was joint bookrunner in the $24 billion rights issue for Royal
Bank of Scotland.
For the first half of 2008, GMI recorded a pre-tax loss of $12.3
billion on net revenues of negative $6.0 billion, due primarily to net
losses in FICC that were partially offset by solid revenues in Equity
Markets and Investment Banking. In addition, GMI recorded fair value
adjustment benefits of approximately $2.2 billion (approximately $1.5
billion in FICC and $700 million in Equity Markets) due to the impact
of the widening of Merrill Lynch's credit spreads on the carrying
value of certain long-term debt liabilities.
Global Wealth Management (GWM)
GWM generated solid net revenues for the second quarter of 2008
despite significant market declines, reflecting the stability of the
client franchise and the significant proportion of recurring net
revenues in GWM.
-- GWM's second quarter 2008 net revenues were $3.4 billion, down
5% from the strong second quarter of 2007. The decrease in net
revenues was primarily due to Global Investment Management
(GIM), which accounted for more than half of the overall
decline. The revenue decline, together with higher
non-compensation expenses resulting from investment in FA
workstations, international expansion, and GWM's online
capabilities, contributed to a 25% decline in GWM's pre-tax
earnings to $738 million. GWM's pre-tax profit margin remains
strong at 22.0%, although down from a record 27.5% in the
prior-year period.
-- Net revenues from GWM's major business lines were as follows:
-- Global Private Client (GPC) net revenues for the second
quarter of 2008 were $3.2 billion, down 3% from the prior-
year period. Compared with the second quarter of 2007, lower
transaction and origination revenues, reflective of less
client activity and origination activity in a challenging
environment, were partially offset by an increase in fee-
based revenues driven by asset-based fees. Net interest
profit also rose, due largely to the inclusion of net
revenues from First Republic, as did revenues from GWM's
franchise in all regions outside the U.S.
-- GIM's second quarter 2008 net revenues were $193 million, a
decline of 37% from the second quarter of 2007, due largely
to lower revenues from investments in alternative investment
management companies. This drop in revenue resulted in a 2.5
percentage point decline in GWM's pre-tax profit margin.
-- Financial Advisor (FA) headcount was 16,690 at quarter-end, an
increase of 30 FAs during the quarter and 490 from the second
quarter of 2007, as GWM continued to be successful in
retaining and recruiting high-quality experienced FAs. FA
turnover, particularly among first and second quintile FAs,
declined during the quarter and continues to outperform the
industry average. Outside the Americas, Merrill Lynch's
continued focus and investment in the GWM franchise increased
international FA headcount by 11% year over year.
-- Net inflows of client assets into annuitized-revenue products
were $8 billion for the second quarter. Total net new money
was negative $5 billion, impacted largely by seasonal client
income tax payments and the departure of a significant
institutional retirement client as a result of a merger
transaction.
-- Total client assets in GWM accounts remained at $1.6 trillion
at the end of the 2008 second quarter.
GWM recorded pre-tax earnings of $1.5 billion for the first six
months of 2008, down 17% from the year-ago period. Net revenues were
$7.0 billion, an increase of 1%. The decrease in pre-tax earnings was
driven by higher expenses that included an $80 million loss on a
client receivable in the first quarter, continuing investment in
growth initiatives and lower revenues from GIM, partially offset by an
increase in net revenues from GPC.
Other Items:
Compensation Expenses
Compensation and benefits expenses were $3.5 billion for the
second quarter of 2008, down 26% from $4.7 billion in the second
quarter of 2007 due to a decline in compensation expense accruals
reflecting lower net revenues and reductions in headcount.
Compensation and benefits expenses were $7.7 billion for the first
half of 2008, down 20% from $9.6 billion in the first half of 2007 due
primarily to the same reasons as the quarterly decline.
Non-compensation Expenses
Total non-compensation expenses (excluding the restructuring
charge) were $2.1 billion for the second quarter of 2008, up 8% from
the year-ago quarter. Details of the significant changes in
non-compensation expenses from the second quarter of 2007 are as
follows:
-- Communication and technology costs were $566 million, up 17%
due primarily to costs related to ongoing technology
investments and system development initiatives, as well as
higher market data information costs.
-- Occupancy and related depreciation costs were $328 million, up
20% due principally to higher office rental expenses
associated with data center growth and increased office space,
including the impact of First Republic.
-- Advertising and market development costs were $166 million,
down 17% due primarily to lower travel and other related
expenses.
Restructuring Charge
Related to its previously announced expense reduction initiative,
the company recorded a pre-tax restructuring charge of $445 million
during the 2008 second quarter, primarily related to severance costs
and the accelerated amortization of previously granted stock awards.
Pre-tax cost savings from this initiative are expected to be
approximately $730 million for 2008 and $925 million on an annualized
basis. Headcount was reduced by approximately 4,200 employees during
the first half of 2008, largely in the U.S., within GMI and support
areas. This reduction was greater than initial reduction estimates of
4,000.
Income Taxes
Income taxes from continuing operations for the second quarter
were a net credit of $3.5 billion, reflecting tax benefits associated
with the firm's pre-tax losses. The second quarter effective tax rate
was 42.9%, compared with 28.9% for the second quarter of 2007. The
increase in the effective tax rate reflected changes in the firm's
geographic mix of earnings.
Capital and Liquidity Management
The firm's liquidity position remained strong with the holding
company's excess liquidity pool at a record level of approximately $92
billion, up from $82 billion at the end of the first quarter of 2008
and well in excess of debt maturing in less than one year.
Merrill Lynch's active management of equity capital during the
2008 second quarter included the issuance of $2.7 billion of new
8.625% Perpetual Non-Cumulative Preferred Stock, Series 8.
At the end of the second quarter of 2008, estimated book value per
share was $21.43, down from $25.93 at the end of the first quarter.
Adjusting for the company's $6.6 billion mandatory convertible
preferred offering on an "if-converted" basis, Merrill Lynch's
adjusted book value per share was $24.94 at the end of the second
quarter of 2008. (1)
Staffing
Merrill Lynch's full-time employees totaled 60,000 at the end of
the second quarter of 2008, a net decrease of 3,100 during the
quarter, primarily related to the headcount reductions described above
under Restructuring Charge.
(1) See Attachment IX for a reconciliation of non-GAAP measures.
John Thain, chairman and chief executive officer, and Nelson Chai,
executive vice president and chief financial officer, will host a
conference call today at 5:00 p.m. ET to discuss the company's 2008
second quarter and first half results. The conference call can be
accessed via a live audio webcast available through the Investor
Relations website at www.ir.ml.com or by dialing (888) 810-0245 (U.S.
callers) or (706) 634-0180 (non-U.S. callers). On-demand replay of the
webcast will be available from approximately 7:00 p.m. ET today at the
same web address.
Merrill Lynch is one of the world's leading wealth management,
capital markets and advisory companies with offices in 40 countries
and territories and total client assets of approximately $1.6
trillion. As an investment bank, it is a leading global trader and
underwriter of securities and derivatives across a broad range of
asset classes and serves as a strategic advisor to corporations,
governments, institutions and individuals worldwide. Merrill Lynch
owns approximately half of BlackRock, one of the world's largest
publicly traded investment management companies with more than $1
trillion in assets under management. For more information on Merrill
Lynch, please visit www.ml.com.
Merrill Lynch may make forward-looking statements, including, for
example, statements about management expectations and intentions,
announced but not completed transactions, strategic objectives, growth
opportunities, business prospects, investment banking pipelines,
anticipated financial results, the impact of off balance sheet
arrangements, significant contractual obligations, anticipated results
of litigation and regulatory investigations and proceedings, and other
similar matters. These forward-looking statements are not statements
of historical facts and represent only Merrill Lynch's beliefs
regarding future performance, which is inherently uncertain. There are
a variety of factors, many of which are beyond Merrill Lynch's
control, which affect the operations, performance, business strategy
and results and could cause its actual results and experience to
differ materially from the expectations and objectives expressed in
any forward-looking statements. These factors include, but are not
limited to, financial market volatility; actions and initiatives taken
by current and potential competitors; general economic conditions; the
effect of current, pending and future legislation, regulation, and
regulatory actions; and the other additional factors described in the
Risk Factors section of Merrill Lynch's Annual Report on Form 10-K for
the fiscal year ended December 28, 2007 and also disclosed from time
to time in its subsequent reports on Form 10-Q and 8-K, which are
available on the Merrill Lynch Investor Relations website at
www.ir.ml.com and at the SEC's website, www.sec.gov.
Accordingly, readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date on which
they are made. Merrill Lynch does not undertake to update
forward-looking statements to reflect the impact of circumstances or
events that arise after the date the forward-looking statements are
made. The reader should, however, consult any further disclosures
Merrill Lynch may make in its future filings of its reports on Form
10-K, Form 10-Q and Form 8-K.
Merrill Lynch may also, from time to time, disclose financial
information on a non-GAAP basis where management believes this
information will be valuable to investors in gauging the quality of
Merrill Lynch's financial performance and identifying trends.
Merrill Lynch & Co., Inc. Attachment I
Preliminary Unaudited
Earnings Summary
For the Three Months Ended Percent Inc / (Dec)
-------------------------- -------------------
(in millions, except Jun. 27, Mar. 28, Jun. 29 2Q08 vs. 2Q08 vs.
per share amounts) 2008 2008 2007 1Q08 2Q07
-------- -------- -------- --------- ---------
Revenues
Principal
transactions $(4,083) $(2,418) $ 3,556 N/M% N/M%
Commissions 1,811 1,889 1,787 (4) 1
Managed accounts and
other fee-based
revenues 1,399 1,455 1,349 (4) 4
Investment banking 1,158 917 1,528 26 (24)
Earnings from equity
method investments 111 431 375 (74) (70)
Other (1) (1,875) (1,449) 387 N/M N/M
-------- -------- --------
Subtotal (1,479) 825 8,982 N/M N/M
Interest and dividend
revenues 7,535 11,861 14,447 (36) (48)
Less interest expense 8,172 9,752 13,970 (16) (42)
-------- -------- --------
Net interest
(loss)/profit (637) 2,109 477 N/M N/M
-------- -------- --------
Revenues, net of
interest expense (2,116) 2,934 9,459 N/M N/M
-------- -------- --------
Non-interest expenses
Compensation and
benefits 3,491 4,196 4,731 (17) (26)
Communications and
technology 566 555 482 2 17
Brokerage, clearing,
and exchange fees 370 387 346 (4) 7
Occupancy and related
depreciation 328 309 273 6 20
Professional fees 263 242 245 9 7
Advertising and
market development 166 176 200 (6) (17)
Office supplies and
postage 55 57 56 (4) (2)
Other 311 313 300 (1) 4
Restructuring charge 445 - - N/M N/M
-------- -------- --------
Total non-interest
expenses 5,995 6,235 6,633 (4) (10)
-------- -------- --------
Pre-tax (loss)/earnings
from continuing
operations (8,111) (3,301) 2,826 N/M N/M
Income tax
(benefit)/expense (3,477) (1,332) 816 N/M N/M
-------- -------- --------
Net (loss)/earnings
from continuing
operations (4,634) (1,969) 2,010 N/M N/M
-------- -------- --------
Discontinued
operations:
Pre-tax
(loss)/earnings from
discontinued
operations (32) (25) 197 N/M N/M
Income tax
(benefit)/expense (12) (32) 68 N/M N/M
-------- -------- --------
Net (loss)/earnings
from discontinued
operations (20) 7 129 N/M N/M
-------- -------- --------
Net (loss)/earnings $(4,654) $(1,962) $ 2,139 N/M N/M
======== ======== ========
Preferred stock
dividends $ 237 $ 174 $ 72 36 229
======== ======== ========
Net (loss)/earnings
applicable to common
stockholders $(4,891) $(2,136) $ 2,067 N/M N/M
======== ======== ========
Basic (loss)/earnings
per common share
from continuing
operations (4.95) (2.20) 2.32 N/M N/M
Basic (loss)/earnings
per common share
from discontinued
operations (0.02) 0.01 0.16 N/M N/M
-------- -------- --------
Basic (loss)/earnings
per common share $ (4.97) $ (2.19) $ 2.48 N/M N/M
Diluted
(loss)/earnings per
common share from
continuing
operations (4.95) (2.20) 2.10 N/M N/M
Diluted
(loss)/earnings per
common share from
discontinued
operations (0.02) 0.01 0.14 N/M N/M
-------- -------- --------
Diluted
(loss)/earnings per
common share $ (4.97) $ (2.19) $ 2.24 N/M N/M
Average shares used in
computing earnings per
common share
Basic 984.1 974.1 833.8 1 18
Diluted 984.1 974.1 923.3 1 7
Annualized return on
average common equity
from continuing
operations N/M N/M 21.0%
Annualized return on
average common equity N/M N/M 22.4%
----------------------------------------------------------------------
N/M = Not Meaningful
Note: Certain prior period amounts have been reclassified to conform
to the current period presentation.
(1) Includes gains and losses on investment securities, private equity
investments, loans and other miscellaneous items.
Merrill Lynch & Co., Inc. Attachment II
Preliminary Unaudited Earnings
Summary
For the Six Months Ended
------------------------
(in millions, except per share Jun. 27, Jun. 29 Percent
amounts) 2008 2007 Inc / (Dec)
----------- ------------ -----------
Revenues
Principal transactions $ (6,501) $ 6,290 N/M%
Commissions 3,700 3,500 6
Managed accounts and other fee-
based revenues 2,854 2,633 8
Investment banking 2,075 3,038 (32)
Earnings from equity method
investments 542 684 (21)
Other (1) (3,324) 1,228 N/M
----------- ------------
Subtotal (654) 17,373 N/M
Interest and dividend revenues 19,396 27,168 (29)
Less interest expense 17,924 25,479 (30)
----------- ------------
Net interest profit 1,472 1,689 (13)
----------- ------------
Revenues, net of interest
expense 818 19,062 (96)
----------- ------------
Non-interest expenses
Compensation and benefits 7,687 9,585 (20)
Communications and technology 1,121 961 17
Brokerage, clearing, and
exchange fees 757 656 15
Occupancy and related
depreciation 637 538 18
Professional fees 505 471 7
Advertising and market
development 342 355 (4)
Office supplies and postage 112 115 (3)
Other 624 654 (5)
Restructuring charge 445 - N/M
----------- ------------
Total non-interest expenses 12,230 13,335 (8)
----------- ------------
Pre-tax (loss)/earnings from
continuing operations (11,412) 5,727 N/M
Income tax (benefit)/expense (4,809) 1,687 N/M
----------- ------------
Net (loss)/earnings from
continuing operations (6,603) 4,040 N/M
----------- ------------
Discontinued operations:
Pre-tax (loss)/earnings from
discontinued operations (57) 391 N/M
Income tax (benefit)/expense (44) 134 N/M
----------- ------------
Net (loss)/earnings from
discontinued operations (13) 257 N/M
----------- ------------
Net (loss)/earnings $ (6,616) $ 4,297 N/M
=========== ============
Preferred stock dividends $ 411 $ 124 231
=========== ============
Net (loss)/earnings applicable to
common stockholders $ (7,027) $ 4,173 N/M
=========== ============
Basic (loss)/earnings per
common share from continuing
operations (7.17) 4.67 N/M
Basic (loss)/earnings per
common share from discontinued
operations (0.01) 0.31 N/M
----------- ------------
Basic (loss)/earnings per
common share $ (7.18) $ 4.98 N/M
Diluted (loss)/earnings per
common share from continuing
operations (7.17) 4.22 N/M
Diluted (loss)/earnings per
common share from discontinued
operations (0.01) 0.28 N/M
----------- ------------
Diluted (loss)/earnings per
common share $ (7.18) $ 4.50 N/M
Average shares used in computing
earnings per common share
Basic 978.5 837.6 17
Diluted 978.5 926.8 6
Annualized return on average
common equity from continuing
operations N/M 21.4%
Annualized return on average
common equity N/M 22.8%
----------------------------------------------------------------------
N/M = Not Meaningful
Note: Certain prior period amounts have been reclassified to conform
to the current period presentation.
(1) Includes gains and losses on investment securities, private equity
investments, loans and other miscellaneous items.
Merrill Lynch & Co., Inc. Attachment III
Preliminary Segment Data (unaudited)
For the Three Months Ended Percent Inc / (Dec)
-------------------------- -------------------
Jun. 27, Mar. 28, Jun. 29, 2Q08 vs. 2Q08 vs.
(dollars in millions) 2008 2008 2007 1Q08 2Q07
-------- -------- -------- --------- ---------
Global Markets &
Investment Banking
Global Markets
FICC $(8,068) $(3,378) $2,421 N/M% N/M%
Equity Markets 1,727 1,883 2,148 (8) (20)
-------- -------- --------
Total Global
Markets net
revenues (6,341) (1,495) 4,569 N/M N/M
Investment Banking
(1)
Origination:
Debt 367 231 471 59 (22)
Equity 338 199 547 70 (38)
Strategic Advisory
Services 317 375 397 (15) (20)
-------- -------- --------
Total Investment
Banking net
revenues 1,022 805 1,415 27 (28)
-------- -------- --------
Total net revenues (5,319) (690) 5,984 N/M N/M
-------- -------- --------
Non-interest
expenses before
restructuring
charge 2,929 3,357 4,047 (13) (28)
Restructuring
charge 311 - - N/M N/M
Pre-tax (loss) /
earnings from
continuing
operations (8,559) (4,047) 1,937 N/M N/M
Pre-tax (loss) /
earnings from
continuing
operations, before
restructuring charge (8,248) (4,047) 1,937 N/M N/M
Pre-tax profit margin N/M N/M 32.4%
Pre-tax profit
margin, before
restructuring charge N/M N/M 32.4%
----------------------------------------------------------------------
Global Wealth
Management
Global Private Client
Fee-based revenues $ 1,591 $ 1,625 $1,544 (2) 3
Transactional and
origination revenues 897 926 1,015 (3) (12)
Net interest profit
and related
hedges(2) 604 638 577 (5) 5
Other revenues 74 111 113 (33) (35)
-------- -------- --------
Total Global Private
Client net revenues 3,166 3,300 3,249 (4) (3)
-------- -------- --------
Global Investment
Management net
revenues 193 299 305 (35) (37)
-------- -------- --------
Total net revenues 3,359 3,599 3,554 (7) (5)
-------- -------- --------
Non-interest
expenses before
restructuring
charge 2,621 2,879 2,575 (9) 2
Restructuring
charge 134 - - N/M N/M
Pre-tax (loss) /
earnings from
continuing
operations 604 720 979 (16) (38)
Pre-tax (loss) /
earnings from
continuing
operations, before
restructuring charge 738 720 979 3 (25)
Pre-tax profit margin 18.0% 20.0% 27.5%
Pre-tax profit
margin, before
restructuring charge 22.0% 20.0% 27.5%
----------------------------------------------------------------------
Corporate
Total net revenues $ (156) $ 25 $ (79) N/M N/M
Non-interest expenses
before restructuring
charge - (1) $ 11 N/M N/M
Restructuring charge - - - N/M N/M
Pre-tax (loss) /
earnings from
continuing operations (156) 26 (90) N/M 73
----------------------------------------------------------------------
Total
Total net revenues $(2,116) $ 2,934 $9,459 N/M N/M
Non-interest
expenses before
restructuring
charge 5,550 6,235 6,633 (11) (16)
Restructuring
charge 445 - - N/M N/M
Pre-tax (loss) /
earnings from
continuing
operations (8,111) (3,301) 2,826 N/M N/M
Pre-tax profit margin N/M N/M 29.9%
----------------------------------------------------------------------
For the Six Months Ended
------------------------
Jun. 27, Jun. 29, Percent
(dollars in millions) 2008 2007 Inc / (Dec)
------------ ----------- -----------
Global Markets & Investment
Banking
Global Markets
FICC $ (11,446) $ 5,046 N/M%
Equity Markets 3,610 4,534 (20)
------------ -----------
Total Global Markets net
revenues (7,836) 9,580 N/M
Investment Banking (1)
Origination:
Debt 598 1,057 (43)
Equity 537 910 (41)
Strategic Advisory Services 692 796 (13)
------------ -----------
Total Investment Banking net
revenues 1,827 2,763 (34)
------------ -----------
Total net revenues (6,009) 12,343 N/M
------------ -----------
Non-interest expenses
before restructuring
charge 6,286 8,199 (23)
Restructuring charge 311 - N/M
Pre-tax (loss) / earnings from
continuing operations (12,606) 4,144 N/M
Pre-tax (loss) / earnings from
continuing operations, before
restructuring charge (12,295) 4,144 N/M
Pre-tax profit margin N/M 33.6%
Pre-tax profit margin, before
restructuring charge N/M 33.6%
----------------------------------------------------------------------
Global Wealth Management
Global Private Client
Fee-based revenues $ 3,216 $ 3,017 7
Transactional and origination
revenues 1,823 1,926 (5)
Net interest profit and related
hedges(2) 1,242 1,169 6
Other revenues 185 210 (12)
------------ -----------
Total Global Private Client
net revenues 6,466 6,322 2
------------ -----------
Global Investment Management net
revenues 492 566 (13)
------------ -----------
Total net revenues 6,958 6,888 1
------------ -----------
Non-interest expenses
before restructuring
charge 5,500 5,125 7
Restructuring charge 134 - N/M
Pre-tax (loss) / earnings from
continuing operations 1,324 1,763 (25)
Pre-tax (loss) / earnings from
continuing operations, before
restructuring charge 1,458 1,763 (17)
Pre-tax profit margin 19.0% 25.6%
Pre-tax profit margin, before
restructuring charge 21.0% 25.6%
----------------------------------------------------------------------
Corporate
Total net revenues $ (131) $ (169) 22
Non-interest expenses before
restructuring charge (1) $ 11 N/M
Restructuring charge - - N/M
Pre-tax (loss) / earnings from
continuing operations (130) (180) 28
----------------------------------------------------------------------
Total
Total net revenues $ 818 $ 19,062 (96)
Non-interest expenses
before restructuring
charge 11,785 13,335 (12)
Restructuring charge 445 - N/M
Pre-tax (loss) / earnings from
continuing operations (11,412) 5,727 N/M
Pre-tax profit margin N/M 30.0%
----------------------------------------------------------------------
Note: Certain prior period amounts have been reclassified to conform
to the current period presentation.
(1) A portion of Origination revenue is recorded in Global Wealth
Management.
(2) Includes interest component of non-qualifying derivatives which
are included in Other Revenues in Attachment I and II.
Merrill Lynch & Co., Inc. Attachment IV
Consolidated Quarterly
Earnings (unaudited) (in millions, except per share amounts)
2Q07 3Q07 4Q07 1Q08 2Q08
------- -------- --------- -------- ----------
Revenues
Principal
transactions $ 3,556 $(5,761) $(12,596) $(2,418) $ (4,083)
Commissions
Listed and over-
the-counter
securities 1,195 1,279 1,294 1,319 1,221
Mutual funds 541 522 570 532 539
Other 51 59 60 38 51
------- -------- --------- -------- ----------
Total 1,787 1,860 1,924 1,889 1,811
Managed accounts and
other fee-based
revenues
Portfolio
service fees 860 904 902 892 852
Asset management
fees 152 150 179 206 198
Account fees 115 117 120 117 116
Other fees 222 221 239 240 233
------- -------- --------- -------- ----------
Total 1,349 1,392 1,440 1,455 1,399
Investment banking
Underwriting 1,130 895 717 543 841
Strategic
advisory 398 382 550 374 317
------- -------- --------- -------- ----------
Total 1,528 1,277 1,267 917 1,158
Earnings from equity
method investments 375 412 531 431 111
Other (1) 387 (1,114) (2,304) (1,449) (1,875)
------- -------- --------- -------- ----------
Subtotal 8,982 (1,934) (9,738) 825 (1,479)
Interest and
dividend revenues 14,447 15,636 14,170 11,861 7,535
Less interest
expense 13,970 13,322 12,624 9,752 8,172
------- -------- --------- -------- ----------
Net interest
profit 477 2,314 1,546 2,109 (637)
------- -------- --------- -------- ----------
Revenues, net of
interest expense 9,459 380 (8,192) 2,934 (2,116)
------- -------- --------- -------- ----------
Non-Interest Expenses
Compensation and
benefits 4,731 1,979 4,339 4,196 3,491
Communications and
technology 482 499 597 555 566
Brokerage, clearing,
and exchange fees 346 364 395 387 370
Occupancy and
related
depreciation 273 295 306 309 328
Professional fees 245 245 311 242 263
Advertising and
market development 200 181 249 176 166
Office supplies and
postage 56 54 64 57 55
Other 300 401 467 313 311
Restructuring charge - - - - 445
------- -------- --------- -------- ----------
Total Non-Interest
Expenses 6,633 4,018 6,728 6,235 5,995
------- -------- --------- -------- ----------
Pre-tax
earnings/(loss) from
continuing operations 2,826 (3,638) (14,920) (3,301) (8,111)
Income tax
expense/(benefit) 816 (1,258) (4,623) (1,332) (3,477)
------- -------- --------- -------- ----------
Net earnings/(loss)
from continuing
operations 2,010 (2,380) (10,297) (1,969) (4,634)
Discontinued
operations:
Pre-tax
earnings/(loss)
from discontinued
operations 197 211 795 (25) (32)
Income tax
expense/(benefit) 68 72 331 (32) (12)
------- -------- --------- -------- ----------
Net (loss)/earnings
from discontinued
operations 129 139 464 7 (20)
------- -------- --------- -------- ----------
Net earnings/(loss) $ 2,139 $(2,241) $ (9,833) $(1,962) $ (4,654)
----------------------------------------------------------------------
Per Common Share Data
2Q07 3Q07 4Q07 1Q08 2Q08
------- -------- --------- -------- ----------
Earnings/(loss) from
continuing
operations - Basic $ 2.32 $ (2.99) $ (12.57) $ (2.20) $ (4.95)
Earnings/(loss) from
continuing
operations -
Diluted 2.10 (2.99) (12.57) (2.20) (4.95)
Dividends paid 0.35 0.35 0.35 0.35 0.35
Book value 43.55 39.60 29.34 25.93 21.43 est.
----------------------------------------------------------------------
Note: Certain prior period amounts have been reclassified to conform
to the current period presentation.
(1) Includes gains and losses on investment securities, private equity
investments, loans and other miscellaneous items.
Merrill Lynch & Co., Inc. Attachment V
Supplemental Data
(unaudited) (dollars in billions)
2Q07 3Q07 4Q07 1Q08 2Q08
-------- ------- ------- ------- --------
Client Assets
U.S. $ 1,550 $ 1,601 $ 1,586 $ 1,479 $ 1,447
Non - U.S. 153 161 165 158 158
-------- ------- ------- ------- --------
Total Client Assets 1,703 1,762 1,751 1,637 1,605
Assets in Annuitized-
Revenue Products 662 691 655 607 630
----------------------------------------------------------------------
Net New Money
All Client Accounts
(1) $ 9 $ 26 $ 30 $ 4 $ (5)
Annuitized-Revenue
Products (1) (2) 12 10 - 9 8
----------------------------------------------------------------------
Balance Sheet
Information: (3)
Short-term
Borrowings $ 20.1 $ 27.1 $ 24.9 $ 21.6 $ 19.1
Deposits 82.8 95.0 104.0 104.8 100.5
Long-term Borrowings 226.0 264.9 261.0 259.5 270.4
Junior Subordinated
Notes (related to
trust preferred
securities) 4.4 5.2 5.2 5.2 5.2
Stockholders' Equity: (3)
Preferred
Stockholders'
Equity 4.6 4.8 4.4 11.0 13.7
Common Stockholders'
Equity 37.6 33.8 27.5 25.5 21.1
-------- ------- ------- ------- --------
Total Stockholders'
Equity 42.2 38.6 31.9 36.5 34.8
----------------------------------------------------------------------
Full-Time Employees (4) 61,900 64,200 64,200 63,100 60,000
Financial Advisors 16,200 16,610 16,740 16,660 16,690
----------------------------------------------------------------------
Common shares outstanding
(in millions):
Weighted-average -
basic 833.8 821.6 825.0 974.1 984.1
Weighted-average -
diluted 923.3 821.6 825.0 974.1 984.1
Period-end 862.6 855.4 939.1 985.1 985.4
----------------------------------------------------------------------
Note: Certain prior period amounts have been reclassified to conform
to the current period presentation.
(1)Net new money excludes flows associated with the Institutional
Advisory Division which serves certain small- and middle-market
companies, as well as net inflows at BlackRock from distribution
channels other than Merrill Lynch.
(2)Includes both net new client assets into annuitized-revenue
products, as well as existing client assets transferred into
annuitized-revenue products.
(3)Balance Sheet Information and Stockholders' Equity are estimated
for 2Q08.
(4)Excludes 300 full-time employees on salary continuation severance
at the end of 2Q07, 400 at the end of 3Q07, 700 at the end of
4Q07, 900 at the end of 1Q08 and 2,800 at the end of 2Q08.
Merrill Lynch & Co., Inc. Attachment VI
(Unaudited) (dollars in millions)
Net Other Net
exposures net exposures
as Net changes as
of Mar. gains/(losses) in net of Jun.
28, reported in exposures 27, Percent
2008 income (1) (2) 2008 Inc/(Dec)
---------------------------------------------------------
U.S. ABS CDO
net
exposures
and losses:
U.S. super
senior ABS
CDO net
exposures
and losses:
High-grade $ 4,121 $(2,933) $1,266 $ 2,454
Mezzanine 2,249 (515) (89) 1,645
CDO-squared 187 (11) (43) 133
----------------------------------------------
Total
super
senior
ABS CDO
net
exposures
and
losses 6,557 (3,459) 1,134 4,232
Secondary
trading 114 (33) 146 227
----------------------------------------------
Total
(3)(4) $ 6,671 $(3,492) $1,280 $ 4,459 (33)%
==============================================
(1)Amounts exclude credit valuation adjustments of negative $1.4
billion for the 2008 second quarter ($6.2 billion life-to-date)
related to financial guarantor exposures on U.S. super senior ABS
CDOs. See table below regarding financial guarantor exposures.
(2)Primarily consists of hedge ineffectiveness, transactions executed,
and amortization during the period.
(3)Hedges are affected by a variety of factors that impact the degree
of their effectiveness. These factors may include differences in
attachment point, timing of cash flows, control rights,
litigation, the creditworthiness of the counterparty, limited
recourse to counterparties and other basis risks.
(4)For total U.S. super senior ABS CDOs, long exposures (including
associated net gains and losses reported in income and other net
changes in net exposures) were $19.9 billion and $26.3 billion at
June 27, 2008 and March 28, 2008, respectively. Short exposures
(including associated net gains and losses reported in income and
other net changes in net exposures) were $15.6 billion and $19.8
billion at June 27, 2008 and March 28, 2008, respectively. Short
exposures primarily consist of purchases of credit default swap
protection from various third parties, including monoline
financial guarantors, insurers and other market participants.
Financial Guarantors Exposure on U.S. Super Senior ABS
CDOs as of June 27, 2008
--------------------------------------------------------
Notional Mark-
of CDS, to-
net of market
gains gains
prior prior
to to Mark-
credit credit Credit to-
Notional valuation valuation valuation market
of adjustments adjustments adjustments value
CDS (1) (2) (3) (4) of CDS
--------------------------------------------------------
Credit
default
swaps (CDS)
with
financial
guarantors:
By
counterparty
credit
quality:(5)
AAA $ - $ - $ - $ - $ -
AA (6,726) (4,667) 2,059 (721) 1,338
A (1,598) (334) 1,264 (758) 506
BBB (3,741) (1,170) 2,571 (1,542) 1,029
Non-
investment
grade or
unrated (6,632) (3,428) 3,204 (3,204) -
--------------------------------------------------------
Total $(18,697) $(9,599) $ 9,098 $(6,225) $ 2,873
========================================================
(1)The gross notional amount of CDS purchased as protection for U.S.
super senior ABS CDOs was $18.7 billion and $18.8 billion at June
27, 2008, and March 28, 2008, respectively. This decline was due
to amortization of the underlying reference entities on the CDS.
Amounts do not include exposure with financial guarantors for
other asset classes.
(2)The notional of the total CDS, net of gains prior to credit
valuation adjustments, was $9.6 billion and $10.9 billion at June
27, 2008 and March 28, 2008, respectively.
(3)Represents life-to-date mark-to-market gains prior to credit
valuation adjustments. Balance was $9.1 billion and $7.8 billion
as of June 27, 2008 and March 28, 2008, respectively.
(4)Represents life-to-date credit valuation adjustments. Balance was
$6.2 billion and $4.8 billion as of June 27, 2008 and March 28,
2008, respectively.
(5)Represents S&P credit rating bands as of June 27, 2008.
Merrill Lynch & Co., Inc. Attachment VII
(Unaudited) (dollars in millions)
Net Net
exposures Other net exposures
as Net changes as
of Mar. gains/(losses) in net of Jun.
28, reported in exposures 27, Percent
2008 income (1) 2008 Inc/(Dec)
--------------------------------------------------------
Residential
Mortgage-
Related
(excluding
U.S. Banks
investment
securities
portfolio):
U.S. Prime
(2) $ 30,750 $ 67 $ 2,901 $ 33,718 10%
=============================================
Other
Residential:
U.S. Sub-
prime 1,435 (544) 121 1,012 (29)%
U.S. Alt-A 3,172 (549) (1,081) 1,542 (51)%
Non-U.S. 8,769 (229) (1,092) 7,448 (15)%
---------------------------------------------
Total Other
Residential
(3) $ 13,376 $(1,322) $(2,052) $ 10,002 (25)%
=============================================
(1)Represents purchases, sales, hedges, paydowns, changes in loan
commitments and related funding.
(2)As of June 27, 2008, net exposures include approximately $29
billion of prime loans originated with GWM clients (of which $13
billion were originated by First Republic Bank).
(3)Includes warehouse lending, whole loans, residuals and residential
mortgage-backed securities.
----------------------------------------------------------------------
Unrealized
Net Net gains/(losses)
exposures as gains/(losses) included in
of Mar. 28, reported in OCI (pre-tax)
2008 income (1) (2)
--------------------------------------------
U.S. Banks Investment
Securities Portfolio:
Sub-prime residential
mortgage-backed
securities $ 3,327 $ (91) $(212)
Alt-A residential
mortgage-backed
securities 5,330 (1,378) 601
Commercial mortgage-
backed securities 5,088 13 270
Prime residential
mortgage-backed
securities 3,580 (211) 82
Non-residential asset-
backed securities 988 (7) 2
Non-residential CDOs 770 (1) (20)
Agency residential
asset-backed
securities 532 2 -
Other 229 - 2
--------------------------------------------
Total $ 19,844 $ (1,673) $ 725
============================================
Net
Other net exposures as
changes in net of Jun. 27, Percent
exposures (3) 2008 Inc/(Dec)
-----------------------------------------
U.S. Banks Investment
Securities Portfolio:
Sub-prime residential
mortgage-backed securities $ (123) $ 2,901
Alt-A residential mortgage-
backed securities (215) 4,338
Commercial mortgage-backed
securities 5 5,376
Prime residential mortgage-
backed securities (337) 3,114
Non-residential asset-
backed securities (152) 831
Non-residential CDOs (4) 745
Agency residential asset-
backed securities (29) 505
Other (5) 226
------------------------------
Total $ (860) $ 18,036 (9)%
==============================
(1)Includes the impairment in the value of certain securities deemed
to be other than temporary.
(2)Represents the reclassification of approximately $1.7 billion in
pre-tax losses out of other comprehensive (loss)/income ("OCI"),
partially offset by an additional $979
million pre-tax loss recorded in OCI. The cumulative, pre-tax
balance in OCI related to this portfolio was approximately
negative $4.7 billion as of June 27, 2008.
(3)Primarily represents principal paydowns and sales.
----------------------------------------------------------------------
Other net
Net Net changes
exposures as gains/(losses) in net
of Mar. 28, reported in exposures
2008 income (1)
----------------------------------------
Commercial Real Estate:
Whole Loans/Conduits $ 9,750 $ 30 $ (1,908)
Securities and Derivatives 960 (61) (324)
Real Estate Investments (2) 7,288 (6) (828)
----------------------------------------
Total Commercial Real
Estate, excluding First
Republic Bank $ 17,998 $ (37) $ (3,060)
========================================
First Republic Bank $ 2,586 $ 22 $ 62
========================================
Net Percent
exposures as Inc/(Dec)
of Jun. 27,
2008
------------------------
Commercial Real Estate:
Whole Loans/Conduits $ 7,872
Securities and Derivatives 575
Real Estate Investments (2) 6,454
-------------
Total Commercial Real Estate, excluding
First Republic Bank $ 14,901 (17)%
=============
First Republic Bank $ 2,670 3%
=============
(1)Primarily represents sales, repayments and the cancellation of
unfunded commitments.
(2)The Company makes equity and debt investments in entities whose
underlying assets are real estate. The Company consolidates those
entities in which we are the primary beneficiary in accordance
with FIN No. 46-R, Consolidation of Variable Interest Entities
(revised December 2003)--an interpretation of ARB No. 51. The
Company does not consider itself to have economic exposure to the
total underlying assets in those entities. The amounts presented
are the Company's net investment and therefore exclude the amounts
that have been consolidated but for which the Company does not
consider itself to have economic exposure.
Merrill Lynch & Co., Inc. Attachment
VIII
Revenue Reconciliation (Non-GAAP Measures)
(dollars in millions)
The following table provides the calculation of Merrill Lynch's net
revenues excluding certain adjustments. While these amounts are
considered non-GAAP measures, management believes that it is relevant
in assessing the quality of our financial performance, identifying
trends in our results and providing more meaningful period-to-period
comparisons.
For the Three Months Ended Percent Inc / (Dec)
-------------------------- -------------------
Jun. 27, Mar. 28, Jun. 29, 2Q08 vs. 2Q08 vs.
2008 2008 2007 1Q08 2Q07
-------- -------- -------- ---------- --------
GMI:
-----
FICC
-----------------------
GAAP revenues, net of
interest expense $(8,068) $(3,378) $ 2,421
Net losses /
(gains) as
follows:
U.S. ABS CDOs 3,492 1,472 36
Leveraged finance
commitments
write-downs 348 927 -
Residential
mortgage-related
exposures 1,255 782 241
U.S. Banks
investment
securities
portfolio 1,673 421 (15)
Commercial real
estate 15 (53) (304)
-------- -------- --------
Total net losses /
(gains) 6,783 3,549 (42)
Credit valuation
adjustments
("CVA") related
to hedges with
financial
guarantors 2,888 3,031 -
Net effect due to
change in Merrill
Lynch credit
spreads on
certain long-term
debt liabilities (98) (1,379) (8)
-------- -------- --------
Adjusted revenues, net
of interest expense 1,505 1,823 2,371 (17)% (37)%
Equity Markets
-----------------------
GAAP revenues, net of
interest expense 1,727 1,883 2,148
Net losses /
(gains) - - -
CVA related to
hedges with
financial
guarantors - - -
Effect of Merrill
Lynch credit
spreads - (695) (20)
-------- -------- --------
Adjusted revenues, net
of interest expense 1,727 1,188 2,128 45% (19)%
Investment Banking
-----------------------
GAAP revenues, net of
interest expense 1,022 805 1,415
Net losses /
(gains) - - -
CVA related to
hedges with
financial
guarantors - - -
Effect of Merrill
Lynch credit
spreads - - -
-------- -------- --------
Adjusted revenues, net
of interest expense 1,022 805 1,415 27% (28)%
Total GMI
-----------------------
GAAP revenues, net of
interest expense (5,319) (690) 5,984
Net losses /
(gains) 6,783 3,549 (42)
CVA related to
hedges with
financial
guarantors 2,888 3,031 -
Effect of Merrill
Lynch credit
spreads (98) (2,074) (28)
-------- -------- --------
Adjusted revenues, net
of interest expense 4,254 3,816 5,914 11% (28)%
GWM
-----
GAAP revenues, net of
interest expense 3,359 3,599 3,554
Net losses /
(gains) - - -
CVA related to
hedges with
financial
guarantors - - -
Effect of Merrill
Lynch credit
spreads 7 (29) -
-------- -------- --------
Adjusted revenues, net
of interest expense 3,366 3,570 3,554 (6)% (5)%
Corporate
-----------------------
GAAP revenues, net of
interest expense (156) 25 (79)
Net losses /
(gains) - - -
CVA related to
hedges with
financial
guarantors - - -
Effect of Merrill
Lynch credit
spreads - - -
-------- -------- --------
Adjusted revenues, net
of interest expense (156) 25 (79) N/M N/M
Total
-----
GAAP revenues, net of
interest expense (2,116) 2,934 9,459
Net losses /
(gains) 6,783 3,549 (42)
CVA related to
hedges with
financial
guarantors 2,888 3,031 -
Effect of Merrill
Lynch credit
spreads (91) (2,103) (28)
-------- -------- --------
Adjusted revenues, net
of interest expense $ 7,464 $ 7,411 $ 9,389 1% (21)%
======== ======== ========
For the Six Months Ended
------------------------
Jun. 27, Jun. 29, Percent
2008 2007 Inc/(Dec)
------------ ----------- ---------
GMI:
-----
FICC
-----------------------------------
GAAP revenues, net of interest
expense $ (11,446) $ 5,046
Net losses / (gains) as
follows:
U.S. ABS CDOs 4,964 101
Leveraged finance commitments
write-downs 1,275 -
Residential mortgage-related
exposures 2,037 619
U.S. Banks investment
securities portfolio 2,094 (42)
Commercial real estate (38) (695)
------------ -----------
Total net losses / (gains) 10,332 (17)
Credit valuation adjustments
("CVA") related to hedges
with financial guarantors 5,919 -
Net effect due to change in
Merrill Lynch credit spreads
on certain long-term debt
liabilities (1,477) 15
------------ -----------
Adjusted revenues, net of interest
expense 3,328 5,044 (34)%
Equity Markets
-----------------------------------
GAAP revenues, net of interest
expense 3,610 4,534
Net losses / (gains) - -
CVA related to hedges with
financial guarantors - -
Effect of Merrill Lynch credit
spreads (695) (34)
------------ -----------
Adjusted revenues, net of interest
expense 2,915 4,500 (35)%
Investment Banking
-----------------------------------
GAAP revenues, net of interest
expense 1,827 2,763
Net losses / (gains) - -
CVA related to hedges with
financial guarantors - -
Effect of Merrill Lynch credit
spreads - -
------------ -----------
Adjusted revenues, net of interest
expense 1,827 2,763 (34)%
Total GMI
-----------------------------------
GAAP revenues, net of interest
expense (6,009) 12,343
Net losses / (gains) 10,332 (17)
CVA related to hedges with
financial guarantors 5,919 -
Effect of Merrill Lynch credit
spreads (2,172) (19)
------------ -----------
Adjusted revenues, net of interest
expense 8,070 12,307 (34)%
GWM
-----
GAAP revenues, net of interest
expense 6,958 6,888
Net losses / (gains) - -
CVA related to hedges with
financial guarantors - -
Effect of Merrill Lynch credit
spreads (22) -
------------ -----------
Adjusted revenues, net of interest
expense 6,936 6,888 1%
Corporate
-----------------------------------
GAAP revenues, net of interest
expense (131) (169)
Net losses / (gains) - -
CVA related to hedges with
financial guarantors - -
Effect of Merrill Lynch credit
spreads - -
------------ -----------
Adjusted revenues, net of interest
expense (131) (169) N/M
Total
-----
GAAP revenues, net of interest
expense 818 19,062
Net losses / (gains) 10,332 (17)
CVA related to hedges with
financial guarantors 5,919 -
Effect of Merrill Lynch credit
spreads (2,194) (19)
------------ -----------
Adjusted revenues, net of interest
expense $ 14,875 $ 19,026 (22)%
============ ===========
----------------------------------------------------------------------
N/M = Not Meaningful
Merrill Lynch & Co., Inc. Attachment IX
Book Value and Equity Capital Reconciliation (Non-GAAP Measures)
(dollars in billions except per share amounts, shares in millions)
Book Value Per Common Share
(estimate)
----------------------------
During the first quarter of 2008, Merrill Lynch issued 66,000 shares
of 9% mandatory convertible preferred stock for an aggregate purchase
price of $6.6 billion to the Korea Investment Corporation, Kuwait
Investment Authority and Mizuho Corporate Bank. The following table
provides the calculation of Merrill Lynch's equity book value per
share to investors adjusted for this offering on an "if-converted"
basis. While this adjusted amount is considered a non-GAAP measure,
management believes it is a useful presentation of the capital
position of the firm, as the mandatory convertible preferred
securities must convert to common shares by October 15, 2010.
Adjustment for
Convertible Preferred
on an "if-converted" Basis Adjusted on an
As of at $52.40 (1) "if-converted"
Jun. 27, 2008 Per Share Basis
------------- -------------------------- --------------
Common
Stockholders'
Equity $ 21.1 $ 6.6 $ 27.7
Preferred
Stock 13.7 (6.6) 7.1
------------- -------------------------- --------------
Total
Stockholders'
Equity $ 34.8 $ - $ 34.8
Common Shares
Outstanding 985.4 126.0 1,111.3
Book Value Per
Common Share $ 21.43 N/A
============= ==============
Adjusted Book
Value Per
Common Share
(2) N/A $ 24.94
============= ==============
----------------------------------------------------------------------
Equity Capital
(estimate)
--------------
The following table provides the calculation of Merrill Lynch's total
equity capital, which includes total stockholders' equity and trust
preferred securities. Merrill Lynch defines equity capital more
broadly than stockholders' equity under U.S. GAAP, as the firm
includes other capital instruments with equity-like characteristics
such as trust preferred securities that have long-dated maturities or
are perpetual.
As of
Jun. 27, 2008
-------------
Total
Stockholders'
Equity $ 34.8
Add Trust
Preferred
Securities 4.7
-------------
Total Equity
Capital $ 39.5
=============
----------------------------------------------------------------------
(1) $52.40 is the "Reference Stock Price" or minimum conversion price
at maturity. The maximum conversion price at maturity is $61.30. See
the press release dated January 15th, 2008 and term sheet on the
investor relations website at www.ir.ml.com for further information
about the terms of these securities.
(2) Adjusted book value per common share is calculated by dividing:
(A) common stockholders' equity after giving effect for conversion of
convertible preferred on an "if-converted" basis at $52.40 per share
by (B) common shares outstanding adjusted for such conversion.
SOURCE: Merrill Lynch
Merrill Lynch Media Relations: Jessica Oppenheim, 212-449-2107 jessica_oppenheim@ml.com or Investor Relations: Sara Furber, 866-607-1234 investor_relations@ml.com
Copyright Business Wire 2008
