Merrill warns over huge shortfall

By LAUREN CHAMBLISS
Updated:

 

MERRILL Lynch, America's largest full-service broker, has warned of a huge shortfall in second-quarter profits and a bleak third quarter. The warning stunned Wall Street and sent financial shares tumbling in pre-market trading. European banking shares also weakened.

The broker's chief executive David Komansky said Merrill had reduced its headcount by 3,300, or 5%, in the last year as part of an effort to rein in costs as revenues slow.

Merrill said weak market conditions in debt and equity trading in the second quarter, ending this week, sliced about 15% off the first quarter's $6.4bn (£4.6bn) in revenue. Analysts had expected Merrill to earn between 78 and 87 cents a share but it said profits would be between 52 and 57 cents a share and that the third quarter also looked weak.

The disappointing news from America's biggest Wall Street firm runs counter to the better-than-expected profit performance from rivals, including Goldman Sachs and Morgan Stanley Dean Witter.

The Dow Jones and Standard & Poor's futures fell sharply as Merrill's news, combined with jitters over the Federal Reserve's interest rate meeting beginning today, depressed investors. Shares in Citigroup, JP Morgan Chase and Goldman Sachs lost ground in sympathy with Merrill, which was off 8.2% in pre-market trading on the Instinet electronic exchange.

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