Wall Street firms' second-quarter results, which are showing the expected damage of weak market trends, increasingly also point to diminishing hopes that business will recover in time for a return to profit growth this quarter, if at all this year.
Merrill Lynch & Co. and Charles Schwab Corp. on Tuesday became the latest to report that their second-quarter earnings fell from a year earlier. And both voiced concern about the near term.
Merrill, which late last month warned Wall Street that the quarter was shaping up to be a tough one, reported a 41% profit decline, to $541 million. But the New York financial services giant beat analysts' per-share earnings expectations, which had been pared way back after the warning. The per-share earnings of 56 cents beat by 2 cents a consensus of analysts surveyed by First Call/Thomson Financial.
Net income at Schwab slipped 26%, to $102 million. The San Francisco company, which also had lowered its earnings forecasts last month, posted per-share operating profits of 7 cents, missing even the reduced consensus by a penny.
Both companies have slashed their work forces, and on Tuesday neither ruled out more job cuts.
Merrill chief financial officer Thomas H. Patrick, discussing the company's second-quarter performance on an investor call, remarked: "Business has been difficult, and the outlook remains uncertain. Without an improvement in market conditions, it's likely that our third quarter will be lower than the second quarter."
His counterpart at Schwab, Christopher V. Dodds, also struck a cautious note in a phone interview after the release of his company's results. Asked what the rest of the year looks like, he said, "It's guarded on our part, and we continue to focus heavily on expenses."
Merrill and Schwab, like their peers, suffered a major falloff in activity in June. That decline was not evident in the results of firms like Goldman Sachs Group or Morgan Stanley Dean Witter & Co., which reported results a month ago because their fiscal second quarters ended in May.
"It's fair to say that June was worse than we had anticipated," Mr. Dodds said. Financial services firms generally expect some slowdown in the summer, but individual investors are likely "worn down" by the delay in the economic revival, he said. "It's difficult to envision [a turnaround] before 2002."
"It's not particularly pretty," said Guy Moszkowski, an equity analyst with Citigroup Inc.'s Salomon Smith Barney unit who covers Merrill and Schwab.
Investment activity could pick up in September on expectations that the economy will finally begin responding to the Federal Reserve's recent rate cuts, Mr. Moszkowski said. But "that's all very speculative," he said.
Meanwhile, both Schwab and Merrill said they will continue to stress cost-trimming. Schwab has eliminated 3,900 positions, or 15% of its work force, since the beginning of the year, while Merrill has cut 3,800 jobs, or 5%. Roughly 2,000 of Merrill's cuts came in the second quarter.
"We're watching headcount," Mr. Dodds said. However, Schwab does not want to "take out too much muscle" in the event the market rebounds, he said.
Mr. Patrick said that Merrill is looking at "across-the-board cuts," though he too indicated a fear of being left shorthanded. "On the upside, we want to leave a little on the table. On the downside, we can't cut costs fast enough."