DBRS Confirms Merrill Lynch & Co., Inc. at AA (low) and Assigns New Ratings to Trust Preferred Securities and Preferred Stock

DBRS has today confirmed the ratings of Merrill Lynch & Co., Inc. (Merrill or the Company) and its subsidiaries. At the same time, DBRS issued first-time ratings for the Company’s trust preferred securities and preferred stock as indicated in the table below.

The rating actions follow a detailed review of Merrill’s operating performance and credit fundamentals. The trend for all ratings is Stable.

The ratings reflect Merrill’s very strong position in global investment banking and capital markets businesses combined with its premier wealth management franchise. The ratings also incorporate the Company’s revitalized culture and robust operating discipline, as well as its strong financial profile and sound risk management practices.

The Company’s powerful and increasingly global investment banking, equities and fixed income markets franchise that is delivering strong operating results is a key element underpinning the ratings. Significant investment has broadened the product range and client reach of these businesses. With over fifty percent of revenues coming from international sources, these businesses are increasingly global in scope, enabling the Company to participate in the expansion of capital markets globally.

The ratings also consider various challenges that the Company faces. In DBRS’s view, sustaining the momentum Merrill has built up is critical for the Company to continue its progress and improve its competitive positions. This may prove more challenging in the face of strengthening competitors.

The Company also needs to deepen the positions of its international businesses in order to fully capture the opportunities of expanding global markets. Merrill’s global expansion also adds the challenges of operating in different local environments. Increased risk taking requires that the rewards be commensurate and balanced with the risk-bearing capacity of the Company.

Moreover, DBRS perceives that Merrill faces a challenge to maintain its culture, operating discipline and internal controls across its growing, increasingly complex organization. At the same time the Company needs to stay nimble and responsive to clients and opportunities.

In DBRS’s view, Merrill has one of the world’s premier wealth management franchises that contributes significantly to its earnings stability, brand awareness and overall franchise strength. This business has more financial advisors, more client assets and better advisor productivity than its major competitors. To enhance the stability of its revenues, Merrill has reduced its reliance on more volatile transaction revenues by broadening its product range and deepening its client relationships. Serving primarily U.S. clients, this business is also active globally as the Company expands its franchise internationally.

By combining its investment management business with BlackRock, Inc. in Q3 2006, the Company has gained a significant share in the earnings of a larger, better positioned asset management company. This combination adds to earnings stability and reduces the potential for conflicts of interest.

For DBRS, a key factor in the Company’s success over the past five years has been the revitalization of its culture that has sharpened the focus on customer needs and responsiveness to business opportunities and the adoption of a robust operating discipline that has delivered more profitable performance. These changes have enabled Merrill to reshape its businesses, reengineer operating processes and improve its resource allocation. Through organic growth, external hiring, bolt-on acquisitions and joint ventures the Company has strengthened and enhanced its businesses, while delivering positive operating leverage. Improved performance has also facilitated a greater appetite for risk that has generated additional revenues.

A strong financial profile and sound risk management also underpin the ratings. With over $800 billion in assets and $7.5 billion in net earnings in 2006, the Company has substantial scale, strong earnings power and the capacity to withstand adverse events. Its broadly diversified businesses contribute to the stability of earnings. Its strong capital, sound risk management and appropriate liquidity also support the ratings

Notes:
All figures are in U.S. dollars unless otherwise noted.
The Commercial Paper ratings of Merrill Lynch & Co., Canada Ltd. and Merrill Lynch Canada Finance Company and the Medium-Term Notes rating of Merrill Lynch & Co., Canada Ltd. are based on a guarantee from Merrill Lynch & Co., Inc.