Wall Street’s Major Players Report Sharp Quarterly Gains

Major Wall Street brokerage firms reported double-digit gains in quarterly profits Tuesday, inciting a strong rally in financial services stocks.

Merrill Lynch & Co., Wall Street’s biggest brokerage firm, said its third-quarter earnings rose 57%, while Bear Stearns Cos. posted a 66% advance and discounter Charles Schwab Corp. a 185% rise. PaineWebber Group Inc.’s earnings for the three months ended Sept. 30 rose 14%.

“For the first nine months of this year, the interest rates have been coming down and stocks have been going up. It’s easy to make money in that environment,” said William L. Hartman, a brokerage industry analyst at J.P. Morgan Securities Inc.

The results reflect optimal conditions for the securities brokerage industry: low interest rates, volatile foreign exchange and bond markets, growing merger activity, refinancing of high-interest-rate debt and billions of new investment dollars pouring into mutual funds.

Merrill Lynch & Co. reported third-quarter net income of $359.69 million, or $3.12 a share, up from the $228.69 million, or $2.04, in 1992.

The per-share results far exceeded analysts’ estimates. Zacks Investment Research said analysts were expecting per-share earnings of $2.55.

Merrill reported that net revenue rose to $2.64 billion, up 22%. Sharp gains came in commissions, due to investor purchases of listed stocks and mutual funds, and investment banking services, helped by strong stock and bond underwriting.

Expenses were higher, up 13% to $2 billion, as compensation and benefits rose 18% due to higher business volumes.

In addition, Merrill increased its quarterly dividend by 14% to 40 cents per share, before the stock split. The dividend will be payable Nov. 17. Merrill’s stock rose $2.875 to $101.625 in heavy trading on the New York Stock Exchange.

Bear Stearns Cos. said earnings for its first fiscal quarter ended Sept. 24 totaled $104.3 million, or 81 cents a share, up from $62.96 million, or 55 cents, during the comparable period in 1992.

The results exceeded analyst estimates of 72 cents a share.

Net revenue was $587.7 million, up 34% from $439.8 million.

Investment banking revenue rose 91% due to heavy activity in stock and debt underwriting. Commissions were up 27% due to back office, institutional sales and private client services businesses. Dealing in mortgage-backed securities and foreign exchange led to a 15% gain in transaction revenue.

The increased business led to a 24% rise in non-interest expenses, which totaled $409.7 million. Compensation and benefits totaled $289.4 million, up 33% from the comparable 1992 quarter.

Bear Stearns’ stock gained 62.5 cents to $24.75 on the NYSE.

PaineWebber Group Inc.’s third-quarter earnings were $59.12 million, or $1.08 a share, compared to $51.67 million, or 87 cents, during the 1992 period. Analysts had expected per-share earnings of 93 cents, according to Zacks.

As with the other firms, expenses were higher, up 18% to $637.4 million, with salaries and benefits accounting for most of the rise. PaineWebber’s stock was up $1.625 at $34.375 on the NYSE.

Charles Schwab Corp. reported third-quarter earnings of $22.2 million, or 37 cents a share, up 184.6% from third-quarter 1992’s $7.8 million, or 13 cents. The results exceeded analysts’ estimates of 33 cents a share.

The most recent quarter’s results reflect a onetime charge of $7 million to prepay high-interest-rate debt.

The results of Schwab, a leading discount broker, illustrate the magnitude of the mutual fund boom: Mutual fund fees were up 57% to $25.8 million and commissions were up 49% to $131.5 million.

Overall, net revenue was $238.8 million, up 50% from $159.3 million in the third quarter of 1992, while expenses rose 32% to $191.1 million.

“In just nine months, we generated higher earnings than we did all of last year, primarily due to record growth in new customer assets and new investor accounts,” said Chairman Charles S. Schwab.

Schwab’s stock surged $1.25 to $37.375 on the NYSE.