Merrill Lynch & Co., Inc. (MER)
Q3 2008 Earnings Call Transcript
October 16, 2008 8:00 a.m. ET

Executives

Sara Furber – Investor Relations
John Thain – Chairman and Chief Executive Officer
Nelson Chai – Chief Financial Officer

Analysts

Meredith Whitney – Oppenheimer & Co.
Roger Freeman – Barclay’s Capital
Glenn Schorr - UBS
William Tanona - Goldman Sachs

Presentation

Operator

Good morning and welcome to the Merrill Lynch third quarter 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. If you like to ask a question during this time simply press “*” then the number “1” on your telephone keypad. If you would like to withdraw your question press the “#” key. I would now like to turn the call over to Sara Furber, Head of Investor Relations. Please go ahead.

Sara Furber

Good morning and welcome to Merrill Lynch''s conference call to review our third quarter and first nine months 2008 results. The following live broadcast is copyrighted to Merrill Lynch. Statements made today may contain forward looking information. While this information reflects management''s current expectations or beliefs, you should not place undue reliance on such statements as our future results may be affected by a variety of factors that we cannot control.

You should read the forward looking disclaimer in our quarterly earnings release as it contains additional important disclosures on this topic. You should also consult our reports filed with the SEC for any additional information, including risk factors specific to our business and the information on calculation of non-GAAP financial measures that is posted on our Investor Relations website, www.ir.ml.com, where an online rebroadcast of this conference call will be available.

And with that, I’ll turn the call over to John Thain, Merrill Lynch''s Chairman and Chief Executive Officer.

John Thain

Thank you Sara and good morning everyone. I’m going to make a few comments on the big picture and then a couple comments about the quarter, and then I’ll turn it over to Nelson to give you the details.

On the macro basis the package put together by the US Treasury, the Fed and the FDIC announced on Monday I believe resolves the core issues with the US financial institutions. The combination of the capital injection, the access to FDIC insured debt and the ability to issue CP through the Fed facility provides the capital and liquidity and financing that I think is necessary to start to unlock the credit markets and I think you will gradually see credit conditions get better.

Unfortunately the focus of the markets and of course all the commentators now is on the real economy and I believe that we are beginning to see a significant contraction in economic activity in the United States that will also impact economic growth around the world. The focus on that slowdown in economic activity is going to continue and I think the real question is not whether or not we’re in a recession but the real question will be how deep and how long and of course government actions will have an impact on that. But I do think that you will start to see improvements in the credit markets and I do think that any questions about the US financial system and those participants in the program that was announced on Monday have been resolved.

As we enter into a more difficult economic environment I think the logic behind the Bank of America/Merrill Lynch transaction that strategic rationale is only reinforced and made stronger. The combination of Bank of America and Merrill Lynch will be one of if not the leading financial institutions in the world. The diversity of our businesses and earnings power, the strength of our balance sheet, the access to financing and to liquidity all, I think, make the combination very powerful and I’m optimistic in spite of a difficult economic environment, certainly for the next year or two we will be very successful and I am certainly both excited about and happy to be part of that team going forward.

In terms of our quarter, the core businesses did relatively well in a very difficult environment. September was particularly difficult for us but starting first with our Wealth Management business it continued to be a very stable, very good business. We were up 160 financial advisors over the quarter. That’s as good an indication of any of the strength of the franchise, the fact that in this environment we were continuing to attract financial advisors.

Net new money was down slightly. Our net annunitized money was up slightly but that business continues to do well and in fact our pre-tax margins were up two percentage points to just under 24%. So, I think that’s a great example even in a very difficult environment the fact that that business continues to do well.

On our Investment Banking side although activity level was down our market share and our position was good. We are currently the number two global advisors in M&A on an announced basis. Our Trading businesses and our Rates and Currency business did well in this environment on a year to year basis, they’re up about 27%. And our Equity Derivatives business particularly given the volatility did very well, and so that our core businesses in spite of the difficult environment did well.