Merrill's ARS holdings drop

Merrill Lynch & Co. Inc. of New York expects its retail client holdings of auction rate securities to fall to $7.5 billion by the end of the year, said Bob McCann, head of the firm's retail unit. Mr. McCann, who spoke yesterday at an investment conference hosted by Lehman Brothers Holdings Inc. of New York, said the firm was working with issuers of closed-end fund ARS to redeem outstanding issues, which would reduce client holdings. Merrill last month said it expected its clients would have under $10 billion of ARS by January, when it will begin buying back ARS from retail customers. In early February, Merrill clients had $22 billion invested in ARS, which has since dropped to $12.5 billion, Mr. McCann said. “We haven't lost a meaningful amount of clients over” the loss of liquidity on ARS, he said. In his remarks, Mr. McCann also played up the size of Merrill's retail division. Competitors' retail brokerage units “struggle with relevance” at their parent companies, he said. Retail brokerage makes up 43% of Merrill's revenue, he said, versus 15% at Citigroup Inc. of New York, 23% at Morgan Stanley & Co. Inc. of New York and 24% at Wachovia Corp. of Charlotte, N.C., Mr. McCann said. UBS AG of Zurich, Switzerland gets 45% of its revenue from private client divisions, but most of that is from overseas, he said. Competition for good advisers is intense, Mr. McCann said, but at Merrill, “80% of [retail revenue] production [comes] from [advisers] who have spent their entire career” at Merrill Lynch, he said. That gives its advisers a “shared experience over many years,” Mr. McCann said.