Magazine article American Banker

Global Reach, Once a Plus, Now Hurting Merrill Lynch

Magazine article American Banker

Global Reach, Once a Plus, Now Hurting Merrill Lynch

Article excerpt

By TANIA PADGETT Analysts and investors have been scratching their heads about Merrill Lynch & Co.'s near-term prospects.

Two weeks ago, the company released fourth-quarter earnings that beat analysts' expectations but disappointed investors. Many analysts cut estimates, maintained "hold" ratings or recommended a Merrill rival: Morgan Stanley Dean Witter.

Stockholders were dissatisfied because other brokerages had upbeat earnings surprises, said brokerage analyst Sallie L. Krawcheck of Sanford C. Bernstein & Co.

"There is more uncertainty regarding Merrill today than there ever has been in its history," said Ms. Krawcheck, who gives the firm a "market perform" rating. "I'm not recommending the stock."

The spread in analysts' estimates is the widest it has been in the last 15 years, Ms. Krawcheck wrote in a report last week. "This is the result of the fierce debate now raging within the investment community on the company's earnings sustainability," she noted.

That debate has been reflected in the stock's performance. Though Merrill Lynch has rebounded from its 52-week low share price of $37.75, on Oct. 7, it has continued to languish behind its peers.

In the last two weeks, Merrill's stock fell 4.69%. During the same period, Morgan Stanley Dean Witter fell 1.29%, and PaineWebber Inc. was off 0.8%.

The problem with Merrill goes beyond its fourth-quarter earnings, said brokerage analyst Dean Eberling of Putnam, Lovell, de Guardiola & Thornton Inc.

Eighteen months ago, Merrill was at the peak of its performance, Mr. Eberling said. At the time, he said, "having global reach was like getting the Holy Grail."

Since then, volatility overseas has turned Merrill's global reach into a negative, Mr. Eberling said. "Investors don't know if the cost cutting, such as the reduction in staff, done during the fourth quarter will be enough to sustain earnings in 1999," he said. …

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