EARNINGS : Merrill, PaineWebber Post Big Gains

Merrill Lynch & Co. on Tuesday reported a surprisingly strong 53% gain in second-quarter earnings, reflecting the No. 1 brokerage’s ability to exploit a boom in stock market investments.

A more narrowly focused firm, PaineWebber Group Inc., said earnings rose 30%, the best quarter for retail business in the firm’s history.

Several brokerage industry analysts expressed mild amazement at Merrill’s strong second-quarter results, which followed a 57% earnings gain for the first quarter.

“Those earnings of Merrill are outstanding,” said Perrin H. Long Jr., a veteran brokerage industry analyst for First of Michigan Corp. in Detroit. “What more could you ask for?”

Bill Hartman, vice president and brokerage industry analyst for J. P. Morgan Securities, was also upbeat.

“Basically, you have a company that has an extremely strong franchise, and they’ve dramatically strengthened management of the company and balance sheet over the past several years,” Hartman said.

Merrill, the nation’s largest brokerage with nearly 12,000 brokers, reported earnings of $345 million, or $3.03 a share, for the April-June period, compared to earnings of $226.2 million, or $1.97 a share, during the comparable period last year.

The per-share results exceeded analysts’ expectations of $2.59 a share, according to the Institutional Brokers Estimate System.

Despite the strong results, Merrill’s stock fell $1 to $84.625 a share in late trading on the New York Stock Exchange. Long attributed the selling to technical influences in the market.

Merrill’s results came on record revenue of $3.97 billion, up 18% from the year-ago period, while client order flow rose 33%. For the first half, Merrill’s earnings were up 55% at $687 million, or $6.05 a share.

Merrill’s investment banking business was up a slight 4% in the second quarter with revenue of $414 million, due mainly to corporate debt underwritings. Long said the slight gain is deceiving because the second quarter in 1992 was unusually heavy for investment banking.

With the growth came increased expenses, with total non-interest expenses reported at $1.97 billion, up 13%, while compensation and benefits rose to $1.28 billion, up 18%.

PaineWebber, meanwhile, said second-quarter net income was $59.3 million, or $1.04 a share, up 30% from $45.8 million, or 79 cents a share, during the year-earlier period.

Revenue was up 16% to $686.5 million, while commissions rose 23% and principal transactions were up 8% from the 1992 second quarter.

PaineWebber said its institutional sales and trading businesses did especially well in the second quarter, with revenue up 16% in the second quarter. Retail sales and marketing of investment products rose 19% to a total of $127.8 billion assets under control, the best half in the firm’s history.

Expenses rose 13% in the second quarter to $589.2 million.

PaineWebber closed down 12.5 cents at $29 a share on the NYSE.