Merrill Lynch & Co. Inc. reported a 9.3 percent decline in second-quarter net income, the expected result of a $275 million net pretax loss from mortgage securities trading.
The giant investment firm said its profit for the three months ended June 26 was $83.3 million, or 76 cents a share, down from $91.1 million, or 86 cents a share, in the year-earlier quarter.
Revenue in the quarter rose to $2.44 billion from $2.33 billion.
Merrill Lynch said in May that it expected to show a $275 million net pretax loss from its mortgage securities trading operation, largely because of unauthorized activity by one trader. The trader, who was fired, accumulated large amounts of a particularly volatile mortgage-backed security that plunged in value when interest rates soared in April.
A number of major Wall Street firms have indicated they lost millions of dollars as a result of the bond market`s April volatility. But Merrill Lynch`s stated loss was the biggest, and the unauthorized trading raised questions over the management of the huge firm`s trading operations.
Merrill Lynch said it had a gross trading loss of $377 million that was reduced by reserves and other factors. The after-tax loss from mortgage securities trading and related hedges was about $155 million, the firm said.
William A. Schreyer, chairman and chief executive officer, said in an interview Monday that without the trading loss, the firm had an ”excellent quarter,” with strong growth in its core operations. He also expressed confidence in the moves taken following the loss and in management controls over the trading operation.
”We have every reason to believe that the likelihood of an event of that nature happening again is very, very low,” he said.
For the six months, net income rose to $191.9 million, or $1.75 a share, from $177.9 million, or $1.71 a share. Revenue rose to $5.14 billion from $4.51 billion.
