In recognition of its renewed vigour and its ability to build and regenerate the business while keeping a sharp eye on profitability,The Banker’s Global Investment Bank 2005 is Merrill Lynch.
Its Q2 figures shone out against many competitors’ shrinking corporate and investment banking revenues. Its global markets and investment banking division reported a 30.2% increase in investment banking revenue over the previous year, which drove a 7.3% rise in the firm’s profits overall. This represented the division’s highest net revenues since Q1 2000 and record H1 earnings for the firm.
“Our Q2 performance and our trend lines are a function of what we have been doing in our institutional business in the last few years. We have built our footprint back out across industries, regions and products to consolidate our position in traditional businesses, such as advisory, debt and equity underwriting, and secondary cash equity trading, and to build strength in new capabilities, such as principal investing, private equity, real estate, derivatives and commodities,” says Greg Fleming, president of global markets and investment banking.
Merrill’s traders also fared well in Q2’s difficult markets. Where firms such as Citigroup and JPMorgan had declines in trading revenues, particularly in fixed income, Merrill was the only firm that significantly raised its fixed income and equity revenues above the levels of Q2 2004 – by 30% and 39% respectively.
Merrill may not be the largest investment bank, nor occupy the top slot in every product but, since the management shake-up in mid-2003 and the dark days it suffered at the bottom of the market, it has gone from strength-to-strength: net revenues in equity and debt origination and M&A revenues have all increased, driving an increase in net investment banking revenues of 21% from the year-ago quarter and 15% on Q1.
Merrill’s focus on profitability has not prevented it from growing and strengthening targeted areas. A rebuild of the high yield franchise, where it used to be very strong, is pretty much complete, and it has pushed aggressively into the leveraged finance area: a couple of years ago it was ranked about 12th, now it sits about sixth. “Hedge funds and financial sponsors represent such a huge percentage of the fee pool that they have become a major client focus for us,” says Mr Fleming. “We still care about market share and about ‘client relevance’. You need to be seen as one of the best to secure the business and we will systematically plug any gaps that we see in our business. Our goal is to be among the top few firms. With the Merrill brand and with our focus, there is no reason why we shouldn’t be there.”
