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Thursday, 18 October, 2001, 09:40 GMT 10:40 UK
Merrill Lynch set to issue grim results
Offices of American-owned investment bank Merrill Lynch
Merrill Lynch's results are expected to be the worst for three years
By BBC business reporter, Mike Sergeant

Merrill Lynch posts third quarter results later on Thursday and the figures are expected to reveal the investment bank's worst quarterly performance since 1998.

There are reports that Merrill could cut up to 10,000 jobs, blaming poor equity trading and a collapse in mergers and acquisitions activity.

There isn't any more M&A to be had... the level has to go down

Paul Gibbs, Head of European M&A Research, JP Morgan.
The downturn in investment banking revenues is causing trouble for European banks too.

Many are set to follow Merrill Lynch and implement radical restructuring programmes.

During the last slowdown 1998, Merrill Lynch acted fast and cut deep.

Many of those made redundant then had to be re-hired on bigger salaries when the market perked up.

That is why Merrill has been cautious this time around.

But now, the axe will almost certainly have to fall.

Fees from equity offerings, mergers and acquisitions (M&A) have dried up, and thousands of jobs are at risk.

Global trend

The problems in the sector are not confined to America.

A report from JP Morgan suggests that less than half of all attempted European acquisitions have not gone through this year.

For the banks dependent on transaction fees, that is very bad news.

"One of the things that was driving M&A was domestic consolidation," said Paul Gibbs, Head of European M&A Research, JP Morgan.

"Some of the deals have been scrapped because market conditions have changed - but many others have been blocked by Brussels.

"That has sent a signal that there isn't any more M&A to be had... the level has to go down."

The dearth of M&A was cited as one of the reasons behind Germany's Commerzbank radical restructuring plan announced earlier this week.

And there is speculation that big European rivals, such as Deutsche Bank and ABN Amro, will also have to cut back staffing levels.

Recovery hopes

Some analysts think it is the most serious crisis the investment banking world has faced in recent memory.

Wall Street banks have so far been reluctant to make New York staff redundant following the world trade centre attacks.

That may mean deeper cuts elsewhere - in financial centres such as London, Tokyo and Frankfurt.

Some banks may be hoping they can ride out the storm and keep valuable staff on the books.

But most analysts do not expect a recovery in investment banking revenue before late next year.

See also:

15 Oct 01 | Business
Commerzbank sheds 3,400 jobs
27 Sep 01 | Business
RBS creates 6,000 jobs
03 Sep 01 | Business
City slashes jobs and pay
13 Aug 01 | Business
Slump 'has cost 25,000 bank jobs'
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