'Thundering herd' stampedes rivals

AS INVESTMENT banking markets revive in the US, Merrill Lynch has for the first time pulled ahead of its bulge-bracket rivals in the fees it earned from securities underwriting during the last quarter.

The news will come as a wake-up call to Citigroup, which itself earlier this week announced healthy investment banking results, and Goldman Sachs, which has already reported improving fee income.

The result for Merrill is also a vindication of the controversial cost-cutting and restructuring carried out by Stanley O'Neal since he became chief executive last December.

Merrill, known as the Thundering Herd in Wall Street circles, made $539m (£337m) in fees during the third quarter, according to Freeman & Co, a Wall Street consulting firm. That compares with $526m at Goldman and $525m at Citigroup.

Helping propel Merrill to top spot was an unusually strong performance in equity underwriting, which rose 68% during the three months to $146m, lifting it into fourth place from seventh among Wall Street banks in this business.

In mergers advice, Merrill ranked second behind Goldman in the third quarter. Last week, Merrill said it was ending a two-year salary freeze, reflecting the strong performance of its businesses.

?Maybe this suggests that the worst is behind us now,‘ said Frank Barkocy, a director of research at Keefe Managers. ?This could be a harbinger of things to come.‘

Investment banking business in general has languished for most of the last three years, but has shown increasing signs of life this year.

Brad Hintz, an analyst at Sanford Bernstein, said he was impressed with Merrill's investment banking performance, particularly because it included a period of the late summer when such business is traditionally very slow.

Merrill appeared to have pulled out of the deep investment banking downturn better than its rivals, he said.

Analysts pointed out that, while the bank had benefited from heavy cost-cutting, it did not appear to have suffered in its ability to do business.

O'Neal took a radical approach to the downturn, ruthlessly shutting businesses that did not perform. Under his tenure as chief executive officer and, before that, as president, the bank has cut more than 18,000 jobs and gone through a senior management shake-up.

Hintz says: ?O'Neal has done exactly what he said he would: cutting back on low-margin ends of the business and not on the muscle. The numbers really prove it.‘

Despite Merrill's good third-quarter investment banking figures, it still lags behind Goldman and Citigroup over the past nine months.

However, as an indication that it is capable of a strong investment banking performance over a longer period, it ranked second behind Citigroup last year in this area of business.