After its sixth consecutive quarter of higher revenue, Merrill Lynch & Co. will focus on organic growth in all its business lines, its finance chief said Tuesday, while looking for strategic acquisitions to accelerate growth.
Jeffrey Edwards, a senior vice president and the company's CFO, said the New York investment bank and brokerage would use purchases to add services and products in order to enhance its platforms and broaden wallet share. And he reiterated that Merrill may consider a deal to expand its banking platform.
"I think any acquisition, including a bank, we will look for incremental products, services, scale, and geographic opportunities that will add value as our platform comes together with another platform," he said. "We want to look for opportunities to more broadly cross-sell and extend more products and services to our clients."
Merrill said earnings fell 64% in the first quarter, to $432 million, or 44 cents a share, after a $1.2 billion noncash charge for new compensation and accounting policies. The earnings per share were 12 cents better than the average of analysts' estimates, according to Thomson First Call. Merrill earned $1.21 billion, or $1.21 a share, in last year's first quarter.
Revenue rose 28%, to $7.96 billion, from a year earlier, and it beat the analysts' projection of $7.33 billion, according to Thomson First Call.
Analysts said it is common knowledge that Merrill has its eye on a banking acquisition to accelerate growth in that business. In November, E. Stanley O'Neal, Merrill's chairman and chief executive, said the company would consider buying a bank as it sought ways to enhance its 3-year-old commercial finance arm, Merrill Lynch Capital, and its cash management capabilities.
But analysts agreed that Merrill is more likely to do something incremental than a "transformational" deal in banking.
"They should be looking at things, but I don't expect them to pull the trigger any time soon," said Jeffrey Harte, an analyst at Sandler O'Neill & Partners LP.
Lauren Smith, an analyst at Keefe, Bruyette & Woods Inc. in New York, said Merrill's 10 acquisitions in the past three years have helped supplement its organic growth. "None of these deals have been transformational," she said, "but collectively they have strategically broadened and deepened Merrill's product lineup and helped the firm expand geographically."
Michael Hecht, an analyst at Banc of America Securities, said speculation and rumors are rife about Merrill's quest to buy something in banking but that he expects the company to make smaller acquisitions to complement the growth it has already had in the banking businesses.
Merrill has $80 billion of deposits and $70 billion of loans. Mr. Hecht said he expects it to try to buy a consumer-loan portfolio.
"Merrill doesn't need to go out and buy a big retail banking footprint," he said. "I don't think that that adds to what they have. I don't think it is a forgone conclusion that they are going to buy a bank. They might look to do something on the cards or mortgages front. My sense is that they continue to look to do something to add onto their business, but they won't look to do something transformational or with a high degree of risk, like buying a big bank."
Mr. Harte agreed that he didn't expect anything transformational.
"They are generically willing to look at a lot of things when it comes to financial services - perhaps equity trading through banks or maybe credit cards - but I don't get the impression that they are willing and eager to buy a bank," he said.
In February Merrill said it would like to expand the roster of banking services it offers its wealth management clients. The company said at the time that it planned to add banking specialists, particularly those with expertise in consumer lending, commercial banking, and credit risk management.
Mr. Edwards said he does not want to suggest that Merrill is more focused on banking than other areas that it is evaluating. "A lot will depend on how we see other investment opportunities in the portfolio," he said. "We are very excited about asset management and the opportunity to be part of an expanded [Merrill Lynch Investment Management] and BlackRock business … ."
In the first quarter, Merrill Lynch announced that it had a definitive agreement to merge its investment management arm with BlackRock Inc. in a deal that would give it a 49.8% stake in the combined company. Assets under management companywide grew by 21%, to $581 billion, at March 31.
Revenue from Merrill's asset management unit rose 38%, to $570 million, helped by asset inflows of $15.4 billion, the biggest since the second quarter of 2000. The BlackRock deal is expected to close in the third quarter.
Merrill will also seek more ways to develop its global private-client business, he said. Its growing financial adviser total for this business is at 15,350.
