Merrill Lynch posted its second quarter results Tuesday. Although 10% up on the same period last year, the figures are a bit of a reality check for the market.
Goldman, Morgan Stanley and Lehman all posted impressive earnings growth in the second quarter, but Merrill's performance was just OK. And that's more to do with a question of timing than any fault of Merrill Lynch. The fact is that the other firms mentioned all closed out their own second quarters at the end of May. And this meant that they were able to post figures which excluded the slowdown in equity trading profits seen in June. Merrill's respectable $1.1bn in net revenues were achieved for the three months ended 30th June.
Merrill's profits failed to exceed forecasts for the first time in six quarters. And the firm's results are thought likely to be the shape of things to come for the industry as a whole for a while. The smart money is on a fairly quiet third, and possibly even fourth, quarter all round. And firms will begin to look carefully at costs again. Some slowdown in recruitment activity seems inevitable.
Many now feel that top firms have somewhat jumped the gun and have increased headcount ahead of deal flow and consistent earnings. Although the future for the industry certainly looks bright for 2005 and beyond, some now fear that the shutters may come down for the remainder of this year. Firms will most likely now tighten their belts and look carefully at their income streams and projected net revenue numbers in the second half. Expect the hiring frenzy of the last few months to stall.