Non-Interest Expenses
Merrill Lynch's non-interest expenses are summarized as follows:
- Excluding provision for costs related to staff reductions.
- Excluding provision for costs related to staff reductions.
Non-interest expenses were $21.1 billion in 2000, compared with $18.1 billion in 1999. The largest expense category, compensation and benefits, was up 21% from 1999 due to higher incentive and production-related compensation, resulting primarily from increased revenues. Also included in this category is PCG's $70 million charge related to staff reductions. An increase in the number of employees compared with year-end 1999 also contributed to this increase. Compensation and benefits were 51.3% of net revenues for 2000, relatively unchanged from 1999. Non-compensation expenses were 27.4% of net revenues, a three percentage point improvement from 1999.
Communications and technology expense rose 13% in 2000 to $2.3 billion due to higher technology-related depreciation and systems consulting, as well as increased expenses related to market data services. Occupancy and related depreciation increased 6% to $1.0 billion.
Advertising and market development expense was $939 million, up 20% from 1999 due to higher travel expenses and sales promotion costs associated with increased business activity. Brokerage, clearing, and exchange fees were $893 million, an increase of 15% from 1999 due to higher execution and clearing costs as a result of increased transaction volumes. Professional fees rose 12% to $637 million, partly as a result of higher employment service fees. Goodwill amortization was substantially unchanged at $217 million for the year, and other expenses declined 6% from 1999.
Non-interest expenses in 1999 were up 16% compared with 1998. In the 1998 third quarter, Merrill Lynch recorded a $430 million ($288 million after-tax) provision for costs related to staff reductions aimed at reducing fixed and semi-fixed costs and resizing certain debt trading businesses. The staff reduction provision covered primarily severance costs, as well as costs to terminate long-term contracts and leases related to personnel reductions and resized businesses (see Note 2 to the Consolidated Financial Statements).
Compensation and benefits rose 22% in 1999 due to higher levels of incentive compensation as a result of significantly higher profit and business volume compared with 1998. Communications and technology expense advanced 17% in 1999, primarily due to higher technology-related depreciation and communication maintenance and support, partly related to strategic online initiatives implemented during 1999. Occupancy and related depreciation increased 8% as a result of continued global expansion. Advertising and market development expense rose 13% from 1998, because of increased costs related to new advertising campaigns, particularly those related to Unlimited Advantage and online initiatives. Brokerage, clearing, and exchange fees, professional fees, and goodwill amortization remained virtually unchanged from 1998. Other expenses rose 33% partially due to higher provisions related to various business, operational, and legal matters.
