Merrill Lynch reports record profits to end bumper year

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Merrill Lynch reported record profits for 2006 and promised that the good times are continuing to roll at the end of a bumper year for Wall Street's major banks.

The company said its pipeline of future deals is not just at an all-time high, but is "up meaningfully" from the volume of work it was planning this time last year.

In bullish remarks about the opportunities available this year, Stan O'Neal, Merrill Lynch's ambitious chief executive, said the company would pursue investment banking and other work in niche areas of the financial markets and across the globe.

"We finished the year positioned better than ever to capitalise on the array of opportunities still emerging around the world as a result of what we believe are fundamental and long-term changes in how the global economy and capital markets are developing," he said.

The group's net earnings last year were $7.5bn, up 47 per cent, making it the second most profitable Wall Street firm after Goldman Sachs. Net revenues, up by a third to $34.7bn, were also a record.

And Merrill Lynch said that it had distributed $7.2bn in bonuses and salaries to its 56,200 employees, 14 per cent more than in 2005.

The Christmas bonus season on Wall Street has been the most lavish ever, fuelling the New York economy and dramatically improving the city government's finances thanks to tax revenues. Investment banking activity has surged because the robust economy, still-low interest rates and soaring stock markets have tempted corporate bosses and private equity groups into mergers and acquisitions.

There has also been a boom in trading in other areas, such as commodities and credit derivatives, thanks to hedge funds, and Mr O'Neal has boosted Merrill Lynch's presence in specialist areas by spending more than $2.6bn to purchase 17 companies since 2004.

Jeff Edwards, Merrill Lynch's chief financial officer, said investors should expect more deals. Integrating bolt-on acquisitions was now "a core competence" of the company and its management, he said.

In an optimistic sign, Merrill Lynch revealed that it was still on a hiring spree, having added 900 new employees in the past three months.

Jeff Harte, analyst at Sandler O'Neill, predicted that the strength of the global economy means 2007 will be another bumper year on Wall Street.

The stock market is still underestimating the investment banks' potential, he told clients. "Given the current operating environment and the historical patterns of cyclical economics, the best should still lie ahead."