Global Operations

Merrill Lynch's non-U.S. operations are organized into five geographic regions:

• Europe, Middle East and Africa,
  
• Japan,
  
• Asia Pacific/Australia,
  
• Canada, and
  
• Latin America.

The following charts illustrate the change in the composition of Merrill Lynch's net revenues by geographic region from 1996 to 2000.

The following summary of regional operating results excludes all items included in the corporate segment. For further information see Note 14 to the Consolidated Financial Statements.

EUROPE, MIDDLE EAST AND AFRICA

Merrill Lynch operates in Europe, the Middle East and Africa as a dealer in a wide array of equity and debt products, and also provides investment management, investment banking, private banking, and research services. This region is poised for accelerated growth due to changes in demographics, the growth of an equity culture, and the development of the Euroland economy. In line with its strategy of becoming a global leader with a strong local presence in key markets, Merrill Lynch now has 47 offices in 21 countries in the region. In addition, Merrill Lynch HSBC, a 50/50-owned corporation formed earlier this year, which is headquartered in London, is combining HSBC's world-class banking with Merrill Lynch's world-renowned research capabilities and investment expertise, to offer online investment and banking services to individual, self-directed customers. A free research service was launched in the U.K. in December in advance of expanded service in 2001.

As a result of the December 1997 acquisition of Mercury Asset Management, Merrill Lynch has preeminent investment management capabilities in this region. As part of the integration of the investment management business, Mercury Asset Management began to operate under the MLIM brand during the year.

All of the region's businesses performed well in 2000, with notable contributions from equity markets and investment banking. Merrill Lynch participated in several landmark transactions during the year, including lead manager for South Africa's first private sector bond issue, lead role in the largest U.S. dollar-denominated bond deal at that time, and joint book runner in the largest accelerated equity book-building offering worldwide. Merrill Lynch has established itself as the leading equities house in the region, and was named "Equity House of the Year" by The Banker. This year was particularly successful in investment banking, as Merrill Lynch participated in a number of top deals in the region, and won seven categories in Corporate Finance magazine's "Deals of the Year 2000" survey, including "Best M&A Takeover." In addition, Merrill Lynch was named by the Reuters/Tempest Emerging Markets Survey as winner in the "Best Broker," "Best Investment Bank," and "Best Broker Execution" categories.

In 2000, net revenues for the region increased 19% from 1999, primarily due to strong equity trading and advisory revenues. Pre-tax earnings increased 33% from 1999 to $1.5 billion, primarily due to increased revenues.

In 1999, net revenues for the region were up 50%, primarily due to higher investment banking and equity and debt trading revenues, as market conditions stabilized compared with the second half of 1998. The increase in pre-tax earnings was mainly attributable to significantly higher revenues, resulting primarily from investment banking activities and the lower 1998 debt trading results.

JAPAN

Merrill Lynch continued to enhance its presence in the region with the successful alignment of its various businesses in Japan. The firm now provides an integrated range of PCG, MLIM, and CICG products and services to individual, institutional, and corporate clients. In a difficult market environment during 2000, CICG and PCG distributed several equity public offerings through Merrill Lynch Japan Securities ("MLJS"), and launched eleven proprietary debt product offerings. Developing synergies between MLIM and PCG resulted in the successful introduction and distribution of six new MLIM funds.

The region's CICG business, which operates under the name Merrill Lynch Japan ("MLJ"), continued to improve its performance in 2000, with record revenues in its equity and advisory businesses. Merrill Lynch has significantly expanded its origination activities and presence in Japan, including involvement in the NTT Communications Corporation privatization. Merrill Lynch ranked No.2 in Japanese announced M&A, according to Thomson Financial Securities Data.

The development of Merrill Lynch's Private Client business in Japan in 2000 continued to be adversely impacted by the difficult market environment. Nevertheless, total client accounts surpassed 100,000, an increase of over 50% from 1999. MLJS introduced variable annuities and securities-based lending products for the first time in the region. In addition, the Japanese versions of the CMA account and Merrill Lynch OnLine were introduced. In March 2001, Merrill Lynch intends to combine MLJS with its institutional group, MLJ, which will facilitate further operating efficiencies.

MLIM, one of the leading institutional money managers in Japan, continued to be adversely affected by the difficult market environment. MLIM has introduced a range of products including index funds, alternative investments, and unit investment trusts. MLIM is one of the few foreign asset management companies in the country with both institutional and retail businesses. During 2000, the business added 18 new institutional clients and $1.8 billion in net new money. In addition, MLIM Japan was selected as the "Best Japanese Equity Fund Manager" by leading pension plan sponsors.

Net revenues in the Japan region were up 31% from 1999, reflecting improved equity and debt trading revenues and increased asset management fees. Pre-tax earnings reached $271 million in 2000, up sharply from 1999.

Net revenues in the Japan region in 1999 were 82% higher than 1998. These higher revenues were partially offset by a full year of fixed expenses and higher production-related compensation costs associated with MLJS.

ASIA PACIFIC/AUSTRALIA

Merrill Lynch serves a broad retail and institutional client base throughout the Asia Pacific/Australia region, and offers a full range of PCG, MLIM, and CICG products. Merrill Lynch operates from offices in the People's Republic of China, Hong Kong (a special administrative region of China), Singapore, Taiwan, South Korea, Thailand, Malaysia, Indonesia, India, the Philippines and Australia. Merrill Lynch has an established trading presence and exchange memberships in all major financial markets in the region. The Private Client business operates 16 offices, including two in the Western United States, offering investment services and wealth management products to its clients. MLIM operates 11 offices offering a diverse mix of investment management products and services to institutional and retail clients.

During 2000, Private Client opened offices in Seoul, Korea and Kaohsiung, Taiwan, and MLIM restructured its business in Thailand with the sale of its asset management unit. Additionally, Merrill Lynch HSBC, the global online investment services and banking company, launched its services in Australia in December of 2000.

The region had another record year in 2000, with record revenues in CICG, PCG, and MLIM. Merrill Lynch participated in some of the largest deals ever for the Asia Pacific/Australia region, including sole book-runner on the largest ever convertible bond offering, joint lead on the largest ever simultaneous equity placement and exchangeable bond offering, and joint sell-side advisor on the largest ever M&A transaction. IFR magazine awarded Merrill Lynch both "Asian Equity-Linked Deal of the Year" and "Asian Equity-Linked House of the Year," and Institutional Investor magazine named Merrill Lynch No.1 in Asian Equity and Fixed Income Research for the second year in a row.

Net revenues in the region grew 17% in 2000 to $1.3 billion. The increase resulted from strong revenues in equity markets and record Private Client revenues, as well as higher advisory fees. Pre-tax earnings rose 16% in 2000 to $226 million.

In 1999, net revenues in the region were up $520 million from 1998 due to strong revenues from equities and equity derivatives and record Private Client revenues, as well as increased asset management fees. Pre-tax earnings rose to $194 million.

CANADA

In 2000, Merrill Lynch solidified its position in Canada as a premier, full service securities firm, providing an integrated range of PCG, CICG, and MLIM products and services to individual and institutional clients as well as corporate and government issuers.

Merrill Lynch's Private Client Network made significant progress in 2000, ranking as one of the top three in Canada with a team of more than 1,200 Financial Consultants. PCG continued to grow as client assets increased to $34 billion. During the year, Merrill Lynch embarked on a wealth management strategy focusing on high-net-worth clients. In December, Merrill Lynch HSBC, the global online investment services and banking company, launched its services in Canada.

In CICG, equity markets performed well, as a result of event-driven transactions and customer volume. Reuters, in its 2000 Survey, ranked Merrill Lynch Canada No.1 in the following categories: "Best Broker Research" according to corporations, and "Best Broker Product and Service" according to fund managers. In recognition of the debt markets business, Euromoney magazine awarded Merrill Lynch Canada "The Best Foreign Bond House." Investment banking generated notable improvement in performance.

MLIM offers a full range of investment solutions for both retail and institutional investors. Assets under management increased 15% from the end of 1999 to $6 billion. During the year, MLIM consolidated its Atlas family of mutual funds into the Merrill Lynch Funds group, resulting in nearly $3 billion in combined assets.

Net revenues in the region increased 31% in 2000 to $823 million, as equity markets improved substantially in the region. Pre-tax earnings more than tripled to $153 million in 2000, primarily due to improved profitability in CICG and improved margins in PCG.

Net revenues for the region in 1999 were down slightly from 1998. Pre-tax earnings increased significantly from 1998, primarily due to costs incurred in 1998 due to the Midland Walwyn merger.

LATIN AMERICA

Merrill Lynch provides various brokerage and investment services, including financial planning, investment banking, research, and asset management to Latin American clients.

The economies of the Latin American countries were on a recovery track through the first half of 2000, as the volatility stemming from the first quarter 1999 Brazilian currency devaluation had substantially subsided. In the latter part of 2000, despite higher oil prices that favored certain Latin American economies, the downturn in the United States and other global stock markets dampened the pace of the region's economic recovery.

In January of 2000, Merrill Lynch executed a $1.1 billion secondary offering for Grupo Televisa, signifying the return of Latin American issuers to the equity markets, after a two-year absence. This equity offering was one of the largest nonprivatization offerings by a corporate issuer in the region. Also in January, Merrill Lynch advised and executed a $3.3 billion exchange offer for an Argentine energy company. The innovative structure of the deal earned Merrill Lynch the title of "Best Foreign M&A House of the Year" in Euromoney's Awards of Excellence issue. In August, Merrill Lynch executed a $4.3 billion secondary offering for a Brazilian company, the largest ever equity offering in Latin America and one of the largest privatizations in emerging markets history. Merrill Lynch continues to receive high honors in numerous categories, including "Best Equity House in Latin America" by LatinFinance and Global Finance, first place in Institutional Investor's 2000 Latin America Research Team for the fourth consecutive year, and first place in LatinFinance's 2000 Latin Research Olympics.

Net revenues for the region increased 17% from 1999 due to the gain on the sale of the Puerto Rico retail brokerage business to Santander Securities Corporation and higher commissions revenues. Pre-tax earnings advanced 36% from 1999 to $169 million.

Net revenues in 1999 increased 49% from 1998 as trading and investment banking revenues were negatively impacted by volatile global markets throughout most of 1998. Pre-tax earnings for 1999 rose $193 million from 1998 due to significantly improved performance by the debt markets group.

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