Three investment banks reported double-digit third-quarter earnings declines Tuesday that reflected a downturn in trading and a slower new-issues market.

Merrill Lynch & Co., the nation's second-largest brokerage, posted net income of $572 million, down 15% from the second quarter but up 451% from the year earlier, when underwriting and trading ground to a halt after Russia defaulted on its domestic debt. Earnings per share of $1.34 beat analysts' consensus estimate by 5 cents.

"Merrill has done a good job rebalancing their trading revenues since last year," said Dean Eberling, a managing director at Putnam, Lovell, de Guardiola & Thornton. "They've been focusing on more liquid instruments and taking less proprietary risk."

At Donaldson, Lufkin & Jenrette Inc., the sixth-largest brokerage, profits fell 26%, to $122 million, though earnings per share of 85 cents beat analysts' consensus by 9 cents.

PaineWebber Group Inc., the seventh-largest brokerage, reported net income of $138.2 million, down 15% from the previous quarter but 67% better than a year earlier. Earnings per share of 86 cents exceeded analysts' consensus by 3 cents.

Analysts said revenues at all three firms were relatively strong for a period that was beset by interest rate uncertainty and a falloff in issuance of instruments such as junk bonds.

Despite the relatively languid period, trading at Merrill was off less than 1% from the second quarter. Its investment banking revenues rose by $40 million.

Trading revenues at DLJ dropped 42% from the second quarter, to $128 million. At PaineWebber, trading revenues declined 16%, to $236 million.

Merrill's chief financial officer, E. Stanley O'Neal, said in a conference call Tuesday that the firm's stable trading results can be partly explained by its lackluster second-quarter performance. "We never had the spike in the second quarter from the first quarter that you saw at some of our competitors," he said.

He added that there is some room to increase revenues now that a long period of hesitancy brought about by last year's overseas problems is ending.

Analysts said they believe Wall Street firms will increasingly look to on-line trading for revenue growth, especially from retail clients.

"The issue for PaineWebber and Merrill is not what happens this quarter but how much of an impact on margins Internet activity will have," said Steven Eisman, an analyst at CIBC World Markets.

Merrill Lynch plans to launch the on-line portion of its Unlimited Advantage program in December. PaineWebber said it reached 124,000 households with its Edge on-line service in the third quarter, and this was worth nearly $100 billion of client assets, it said.

DLJ is still experiencing growing pains from its on-line brokerage, DLJdirect, which had an after-tax loss of $3.3 million.

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