This summary is based on the first quarter fiscal 2008 earnings call conducted by Merrill Lynch & Co Inc. (MER: chart) on April 17, 2008.

Management:

Chairman and CEO: John A Thain
Chief Financial Officer: Nelson Chai
Investor Relations: Sara Furber

Key Investor Issues:

- Q1 net loss from continuing operations was $2.20 per diluted share versus net earnings of $2.12 per diluted share for Q1 of 2007.
- First Republic acquisition contributed positively with $1.3 billion during the quarter.

First-Quarter Financial Highlights:

The net loss from continuing operations for the quarter was $1.97 billion, or $2.20 per share compared to net earnings from continuing operations of $2.03 billion, or $2.12 per diluted share in the prior year quarter.

Merrill Lynch''s net loss for the first quarter of 2008 was $1.96 billion, or $2.19 per diluted share, compared to net earnings of $2.16 billion, or $2.26 per diluted share for the year-ago quarter.

In the challenging market environment, which continued to deteriorate during the quarter, net revenues were $2.9 billion, down 69% from prior year.

This was due to net write-downs totaling $1.5 billion related to U.S. ABS CDOs and credit valuation adjustments of negative $3 billion related to hedges with financial guarantors, most of which related to US super-senior ABS CDOs. To a lesser extent, net revenues were also impacted by net write-downs related to leveraged finance and residential mortgage exposures, which were offset by a net benefit of $2.1 billion, due to the impact of the widening of Merrill Lynch''s credit spreads on the carrying value of certain of the firm’s long-term debt liabilities. Excluding these write-downs, credit valuation adjustments and the net benefit related to long-term debt liabilities, net revenues were $7.4 billion, down 26% from the prior-year period.

Expenses

- The compensation and benefits expenses were $4.2 billion for the quarter, down 14% from $4.9 billion in the first quarter of 2007. This was due to a decline in compensation accruals reflecting lower net revenues.
- The management reported that the firm intends to reduce headcount from year-end levels by about 4,000 employees excluding financial advisors and investment associates.
- The cost savings from the reduction are estimated to be $800 million on an annualized basis, including about $600 million for the remainder of fiscal 2008.
- The firm therefore anticipates a restructuring charge of about $350 million for the quarter.

- The total non-compensation expenses were $2 billion for the quarter, an increase of 10% from the last year quarter.
- The communication and technology costs were $555 million, 16% higher due to costs related to ongoing technology investments and higher market data information costs.
- The brokerage, clearing and exchange fees were $387 million, 25% higher compared with last year quarter. This was a result of higher exchange fees, brokerage fees and bank fees especially associated with increased transaction volumes and increased equity trading activities within GMI.
- The occupancy and related depreciation costs increased 17% to $309 million from same period last year whilst advertising and market development costs put on 14% to $176 million from first quarter of 2007.
- Other expenses were 12% higher to $313 million from past year quarter, primarily due to lower minority interest expenses associated with certain consolidated investments partly offset by a reserve related to a client receivable with GWM.

- The firm’s income taxes from continuing operations for the quarter were a net credit of $1.3 billion. This reflects tax benefits associated with the firm’s pre-tax losses.
- The quarter effective tax rate was 40% versus 30% in the last year quarter. The increase is a reflection of changes in the firm’s geographic mix of earnings.

- Capital and Liquidity Management remained strong during the quarter with the holding company’s excess liquidity pool at about $82 billion versus $79 billion end of last year.
- The firm issued 36.7 million shares of common stock for $1.8 billion in January 2008 as well as an additional 12.5 million shares for $600 million in February 2008 relating to equity investments from Tamasek Holdings.
- The firm also issued 66,000 shares of 9% mandatory convertible preferred stock for an aggregate purchase price of $6.6 billion for long-term investors including the Korea Investment Corporation, Kuwait Investment Authority and Mizuho Corporate Bank. The private placements reflect up to 126 million shares of common stock assuming conversion takes place.
- At the end of the quarter, the book value per share was $25.93, a decrease from $23.94 at the end of 2007.

- The management also reported that firm’s full-time employees totaled 63,100 at the end of the first quarter of 2008. This represents a net decrease of 1,100 during the quarter, primarily relating to the discontinuation of mortgage origination at First Franklin and the sales of ML Capital.

Business Segment Review:

- The Global Markets and Investment Banking (GMI) recorded net revenues of negative $690 million and a pre-tax loss of $4 billion for the first quarter of 2008.
- The challenging market conditions resulted in net losses in Fixed Income, Currencies and Commodities (FICC) together with weaker revenues in Equity Markets and Investment Banking from the prior year period.
- GMI’s Q1 net revenues included a net benefit of about $2.1 billion due to the impact of the widening of the company’s credit spreads on the carrying value of certain of the long term debt liabilities.

- FICC net revenues were negative $3.4 billion for the quarter, impacted by net losses related to the U.S. ABS CDOs and credit valuation adjustments related to hedges with financial guarantors.
- The management advised that to a lesser extent, FICC was impacted by net write-downs related to leveraged finance and residential mortgage exposures.
- At the end of the quarter, net exposures to the U.S. ABS CDOs were $6.7 billion, an increase from $5.1 billion at the end of 2007.
- During the quarter, credit valuation adjustments related to the firm’s hedges with financial guarantors were negative $3 billion, including negative $2.2 billion related to the U.S. super-senior ABS CDOs.
- The management reported that the net exposures related to the U.S. sub prime residential mortgages declined during the quarter to $1.4 billion. This was due to additional hedging, asset sales and net write-downs of $306 million during the quarter.
- The net exposures related to Alt-A residential mortgages increased to $3.2 billion due to asset repurchases that were partly offset by $402 million of net write-downs during the quarter.
- The net exposures related to prime residential mortgages increased to $30.8 billion due to new originations with GWM clients.
- The net exposures related to non-U.S. residential mortgages declined to $8.8 billion due to a whole loan securitization and net write-downs of $105 million partly offset by asset purchases.

- The management reported that within the investment securities portfolio of the company’s U.S. banks, net pre-tax write-downs of $3.1 billion were recognized through other comprehensive income/(loss) (OCI) and $421 million through the income statement during the Q1 of 2008.
- At quarter end, the pre-tax OCI balance related to this portfolio was about negative $5.4 billion. The quarter write-downs were primarily related to Alt-A residential mortgage-backed securities.
- At the end of the Q1 of 2008, leveraged finance commitments were approximately $14 billion, a decrease from about $18 billion at the end of Q1 of 2007. The net write-downs related to these exposures were about $925 million during the quarter.
- At the end of the quarter, the net exposures related to commercial real estate totaled about $21 billion, down from the end of 2007. These amounts exclude $4 billion of net exposures sold to GE Capital during the quarter.