Merrill Lynch said Tuesday second-quarter net earnings surged 31 percent on strong investment banking results, helping the company shrug off concerns that subprime mortgage-related activities would be a spoiler.
Merrill Lynch shares were up about 1 percent in early Tuesday trade as the company easily beat earnings and revenue estimates. The stock is down about 5 percent this year.
Despite the forecast-beating results, shares of Merrill lost ground Tuesday after opening higher.
"The quarter showed that Merrill has navigated recent market problems quite well and that the issues of market concern are not a major driver of earnings," Deutsche Bank analyst Mike Mayo said in a research note. Mayo has a "buy" rating on Merrill's stock.
The world's largest brokerage said net earnings were $2.1 billion, or $2.24 a diluted share, compared with $1.6 billion, or $1.63, in the year-earlier period.
Analysts, on average, looked for Merrill Lynch to earn $2.02 a share, according to Reuters Estimates.
Net revenue in the quarter rose 19 percent to $9.7 billion from $8.2 billion in the year-earlier period. That easily topped the average revenue estimate of analysts who looked for $9.26 billion.
Revenue from investment banking soared 41 percent to $1.4 billion on debt offerings and fees from mergers and acquisitions. Cheap debt has fueled a global M&A frenzy as private equity funds and others snap up companies.
Most of the company's global markets and investment banking business happens outside the United States. Non-U.S. net revenue in that segment accounted for 61 percent of GMI's net revenue in the quarter, and grew much faster than U.S. revenue.
Merrill's fixed-income, currencies and commodities business saw revenue climb 55 percent to $2.6 billion. The company said those results benefited from the trading of credit and interest-rate products. There was a decline in net revenue from structured finance and investments business, which includes mortgage-related activities.
"We had thought we might be approaching the end of the road in commodities and currencies, but that doesn't appear to be the case," said Bill Fitzpatrick, an analyst of the $1.8 billion JohnsonFamily Funds in Racine, Wisconsin. The fund does not own Merrill shares.
Merrill's global wealth management business ended the second quarter with $1.7 trillion in total client assets. Total new money in the quarter was $9 billion.
Merrill Lynch shares were up 80 cents to $88.19 on New York Stock Exchange trade.