Major Brokerages’ Profits Exceed Analyst Expectations

Brokerages Merrill Lynch & Co., PaineWebber Group Inc. and Jefferies Group Inc. reported profits well above analyst expectations for the first quarter as rising markets boosted commissions, trading and other income.

Merrill, the biggest U.S. brokerage, said its earnings rose 18% to $609 million, or $1.44 a share. powered by a rebound in trading of stocks and especially bonds. Analysts were anticipating $1.23 a share.

PaineWebber, the nation’s fifth-largest securities firm, posted a 33% jump in earnings to $160.6 million, or $1.01, far beyond the analyst forecast of 73 cents.

Los Angeles-based Jefferies, which specializes in trading large blocks of shares for institutional investors, beat expectations of 74 cents a share with a profit, excluding charges, of $19.9 million, or 83 cents, up from $17.9 million, or 77 cents, a year ago.

The results, which follow the posting of strong profits by a slew of Wall Street rivals such as Morgan Stanley Dean Witter & Co., Goldman Sachs & Co., Bear Stearns Cos. and Lehman Bros Holdings Inc., show the securities industry’s fortunes have turned upward after taking a big hit during last year’s market turmoil.

The results also indicate that upstart Internet brokerages have not yet cut into commission revenues, the domain of traditional brokers, although Web brokers have signed up about 7 million customers in the last two years, said analyst Michael Flanagan of Financial Service Analytics.

Merrill’s trading revenue jumped 23%, while commission revenue rose 7.5% and revenue from asset management grew 7.8%. But investment banking revenue dropped 24%. Net revenue rose 10.5% to $5.26 billion.

Return on shareholders’ equity, a key measure of profitability, was 24.6%, compared with 24.0% in the year-ago period.

PaineWebber’s revenue from asset management soared 30%, while commission revenue jumped 17% and trading revenue rose 13%. Investment banking revenue was little changed at $126 million. Net revenue rose 18% to $1.3 billion.