Merrill not seen repeating its Q1 performance

By Elinor Comlay - Analysis

NEW YORK (Reuters) - If Merrill Lynch can keep cranking out earnings at the same pace as the first quarter, the investment bank could more than pay for itself within two years. The only problem is, it's not likely to repeat this quarter.

Merrill, which Bank of America Corp (BAC.N) bought on January 1 for about $29.1 billion, contributed $3.7 billion to Bank of America's profit in the first quarter.

The investment bank and brokerage's outsized net income came mainly from fixed income trading, just as with Goldman Sachs Group (GS.N) and JPMorgan Chase & Co (JPM.N) last week. Bond markets oscillated wildly in the first quarter, creating big potential profits.

But many will see the party soon ending for bond trading, as markets stabilize. And Merrill Lynch has other problems to wrestle with, including the exodus of clients, brokers, and Merrill executives. Add in credit losses for assets like mortgages, and the outlook for future quarters is not good, analysts said.

"This quarter is just not sustainable," said Nancy Bush, analyst at NAB Research, noting the bank cannot rely on another record quarter for trading activity.

WEALTH MANAGEMENT

Merrill's wealth management unit, which Kenneth Lewis described in September as the "crown jewel" of the acquisition, lost 2,000 brokers during the quarter, leaving the firm with 16,000 advisers.

Assets under management at Bank of America declined to $697 billion, after clients pulled $43 billion from the firm and market declines eroded another $29 billion.