The stock market downturn is taking a big toll on Wall Street, with Merrill Lynch & Co. (ticker symbol: MER) and Charles Schwab Corp. (SCH) reporting drastically lower second-quarter profits Tuesday and saying the third quarter is starting poorly.
Net income at Merrill, the biggest securities firm, fell 41% to $541 million, or 56 cents a share. The average estimate of 14 analysts surveyed by First Call/Thomson Financial was 54 cents.
Schwab's net income dipped 26% to $102 million, or 7 cents a share. Excluding one-time charges, operating profit shrank 51%. Earnings fell short of analyst expectations of 8 cents a share.
Falling stocks hurt Merrill's investment banking business and caused trading activity, particularly among individual investors, to dry up at both firms.
The news was brighter at Los Angeles-based securities firm Jefferies Group Inc., which said second-quarter profit rose 34%, as revenue grew in investment banking, trading and asset management. The firm earned $16.6 million, or 65 cents a share. Wall Street expected 56 cents a share.
Tom Patrick, Merrill's chief financial officer, said the slowdown may prompt more firings in addition to the 3,800 positions eliminated this year.
Merrill shares fell 45 cents to $52.70 after dipping as low as $50.86. Schwab shares rose $1.04 to $15.49. Analysts said Schwab shares rose because the firm took in more new money than Merrill, its biggest competitor for individuals' assets.
The results show that the deepest earnings slump for securities firms since 1998 has yet to reach bottom.
While the drop in mergers and stock sales is cutting earnings across Wall Street, Merrill's decline was steeper than competitors'. The firm was unable to capitalize on a rebound in energy and bond trading after scaling back those businesses in recent years, Chief Executive David Komansky said last month.
Merrill's revenue from principal transactions slid 41% to $911 million and commission revenue fell 17% to $1.4 billion. Investment-banking revenue declined 10% to $975 million. Total net revenue declined 19% to $5.57 billion.
At Schwab, commission revenue fell 37%. Revenue from trading fell more sharply toward the end of the quarter than expected, Chief Financial Officer Christopher Dodds said. Average daily commission trades in June fell to 138,000, the lowest since September 1999, he said.
"When June came along and the bottom fell out, we were surprised," Dodds said. The trading slump has continued in the first weeks of the third quarter, he said.
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The stock market slide that began in March 2000 has hurt business on Wall Street and taken a toll on brokerage stocks. Two leading firms, Merrill Lynch and Schwab, reported sharply lower second-quarter profits Tuesday.
Amex brokerage index, monthly closes and latest
Tuesday: 485.34, up 13.58
Source: Bloomberg News