December 5, 2008

Research Associate: Binod Kr. Das, M.Com.

Editor: Madhurima Majumdar, CA

Sr. Ed.: Ian Madsen, CFA; ; 1-800-767-3771 x9417

www.zackspro.com 111 N. Canal Street, Suite 1101 lChicago, IL 60606

Merrill Lynch & Co. / (MER – NYSE) / $15.40

Note: FLASH REPORT; more details to come; changes are highlighted. Except where noted, and highlighted, no other sections of this report have been updated.

Reason for Report: FLASH UPDATE: Merrill shareholders ok deal with New York-based investment bank

Prev. Ed.: News Update, November 24, 2008.

Flash Update

On December 5, 2008, Merrill Lynch & Co. announced that its shareholders approved its acquisition by a New York-based investment banking firm at a special shareholders meeting. Under the terms of the agreement reached in September 2008, shareholders of Merrill will receive 0.8595 of a share of the investment bank for each Merrill share they hold. MER said it expects the acquisition to close by end of 2008.

A more expanded account of analyst opinions will follow in the next update of MER.

Portfolio Manager Executive Summary [Note: This section has NOT been updated]

Merrill Lynch & Co., through its subsidiaries and affiliates, provides capital markets services, investment banking and advisory services, wealth and asset management, insurance, banking, and related products and services on a global basis. With offices in 40 countries and total client assets of approximately $1.5 trillion, Merrill Lynch is organized into two main businesses, the Global Markets and Investment Banking group (GMI) and Global Wealth Management (GWM). In addition, Merrill Lynch owns just under half of BlackRock, Inc, one of the world’s largest publicly traded asset managers with over $1.0 trillion in assets under management.

100.0% of the firms in the Digest group are neutral on the stock, while none gave a positive or negative stance.

Bears (Neutral or negative equivalent outlook) – thirteen firms or 100.0%: Target Price range: $18.00-$29.00. Firms continue to see little risk to the acquisition by BAC being approved by shareholders of both companies, given the significant strategic benefits to BAC and the lack of options for MER shareholders due to its weaker balance sheet.

October 23, 2008

Recent Events [Note: This section has NOT been updated]

On November 21, 2008, Series 5 dividends were paid to holders of record on November 10, 2008.

On October 27, 2008, the board of directors of MER declared a regular quarterly dividend of $0.35 per common share payable December 3, 2008, to shareholders of record on November 13, 2008. Further details are provided below.

On October 17, 2008, the Securities Law Firm of Klayman & Toskes, P.A., announced that a class action lawsuit has been filed against MER and other Defendants on behalf of purchasers of Fannie Mae Preferred Stock, Series S. According to the Complaint, the Defendants, including MER, underwrote the offering for Fannie Mae Preferred Stock S. However, in connection with the offering, the Complaint alleges that the underwriters, including MER, knew or recklessly disregarded that Fannie Mae was massively undercapitalized, due to Fannie Mae's over-concentration in subprime investments and Alt-A mortgages. These assets were not properly accounted for in violation of Generally Accepted Accounting Principles (GAAP).

On October 16, 2008, MER announced its 3Q08 financial results. Highlights are as follows:

·  Reported net loss was $5.2 billion, or $5.58 per diluted share versus net loss of $2.2 billion, or $2.82 per diluted share in 3Q07.

·  Net loss from continuing operations was $5.1 billion, or $5.56 per diluted share versus net income of $2.4 billion, or $2.99 per diluted share in 3Q07.

·  Total revenue was $16.0 million.

On October 13, 2008, MER raised a $2.65 billion fund to invest in Asian real estate. The company said its "Asian Real Estate Opportunity Fund" would mainly invest in Japan, China, South Korea and India, but would also consider Southeast Asia and Australia.

On October 10, 2008, The Securities Law Firm of Klayman & Toskes, P.A. announced that a class action lawsuit has been filed against MER and other Defendants on behalf of purchasers of an investment bank (LEH) Preferred Stock, Series J. According to the Complaint, the Prospectus for LEH Preferred Stock J contained material misstatements and omissions. Specifically, it is alleged that the representations made in LEH's Prospectus were materially false and misleading.

On October 09, 2008, MER announced, in connection with NYSE Euronext’s acquisition of the American Stock Exchange (Amex), it will transfer the listing of some securities, which are currently listed on the Amex, to NYSE Arca. The voluntary Amex delisting of the Securities is occurring in order to transfer the listing of such Securities to NYSE Arca due to the acquisition of the Amex by NYSE Euronext and to comply with NYSE Euronext’s plans to consolidate all listed exchange-traded funds and structured products on NYSE Arca. The transfer in listing of each of the Securities is expected to occur on or about November 20, 2008.

On October 08, 2008, The Securities Law Firm of Klayman & Toskes, P.A., announced a class action lawsuit has been filed against MER and other Defendants on behalf of purchasers of Fannie Mae Preferred Stock, Series T. According to the Complaint, the Defendants, including MER, distributed an Offering Circular that contained materially false and misleading information. The Offering Circular was issued in connection with the sale of about 80 million shares, or $2.0 billion, of Fannie Preferred Stock T. It is alleged that the Offering Circular misrepresented Fannie Mae's capital position by postponing a series of asset write-offs that were mandated under GAAP.

On September 15, 2008, Standard & Poor's placed its ratings on Merrill Lynch & Co. (MER) on review. The action followed BAC’s agreement to acquire Merrill for $50.0 billion in stock.

On September 15, 2008, an investment banking firm (BAC) announced that MER has agreed to a deal to be acquired by them in a $50.00 billion all-stock transaction. Under the terms of the deal, BAC would exchange 0.8595 a share of BAC common stock for each MER common share. The price is 1.8 times stated tangible book value. Under the agreement, three directors of MER will join the BAC Board. The transaction is expected to close in1Q09, subject to regulatory approvals.

Overview [Note: This section has NOT been updated]

New York-based Merrill Lynch & Co. (MER) is one of the leading wealth management, capital markets, and advisory companies with offices in 40 countries and total client assets of almost $1.5 trillion. As an investment bank, it global trader and underwriter of securities and derivatives across a broad range of asset classes, and serves as a strategic advisor to corporations, governments, institutions, and individuals worldwide. For more information on MER, please visit www.ml.com. MER operates on a calendar year basis.

Analysts have identified the following factors for evaluating the investment merits of MER:

Key Positive Arguments / Key Negative Arguments
·  MER continues to reduce exposures and de-leverage the balance sheet prior to the closing of the BAC deal. As the landscape for financial services firms continues to change and transition teams make good progress, firms believe even more that the transaction will create an unparalleled global company with pre-eminent scale, earnings power and breadth. / ·  With de-leveraging likely to continue over the near term, firms believe results for MER will remain rather challenging and they expect additional write-downs in forthcoming quarters.

October 23, 2008

Revenue [Note: This section has NOT been updated]

Prior to the 3Q08 earnings release, the Zacks Digest average total revenue forecast was $10,058.0 million, $31,172.0 million, $34,510.0 million and $41,967.0 million for FY08, FY09, FY10 and FY11, respectively. Following the 3Q08 earnings release, the Zacks Digest average total revenue forecast decreased to $5,892.0 million, $27,917.0 million, $29,852.0 million and $37,908.0 million for FY08, FY09, FY10 and FY11, respectively. Following the recent update, the Zacks Digest average total revenue forecast remained unchanged at $5,892.0 million, $27,917.0 million, $29,852.0 million and $37,908.0 million for FY08, FY09, FY10 and FY11, respectively.

Prior to the 3Q08 earnings release, Zacks Digest projected (10.6%), 209.9%, 10.7% and 21.6% y/y growth in total revenue for FY08, FY09, FY10, and FY11, respectively. Following the 3Q08 earnings release, the Zacks Digest average y/y revenue growth rate decreased to (47.6%) and 6.9% for FY08 and FY10, respectively, but increased to 373.8% and 27.0% for FY09 and FY11, respectively. Following the recent update, the Zacks Digest average y/y revenue growth rate remained unchanged at (47.6%), 373.8%, 6.9% and 27.0% for FY08, FY09, FY10 and FY11, respectively.

Revenue, as compiled by Zacks Digest is provided in the table below:

($ in million) / 3Q07A / 2007A / 2Q08A / 3Q08A / 4Q08E / 2008E / 2009E / 2010E / 2011E
Commissions / 1,860 / 7,284 / 1,811 / 1,745 / 1,752 / 6,892 / 6,560 / 6,414 / #DIV/0!
Principal Transactions / (5,761) / (12,067) / (4,083) / (6,573) / (1,605) / (13,857) / 3,597 / 8,969 / #DIV/0!
Investment Banking / 1,277 / 5,582 / 1,158 / 845 / 798 / 3,604 / 3,777 / 4,649 / #DIV/0!
Managed accounts & other fee-based revenue / 1,392 / 5,465 / 1,399 / 1,395 / 1,361 / 5,416 / 6,169 / 4,494
Earnings from equity method Investments / 412 / 1,627 / 111 / 4,401 / 185 / 5,102 / 850 / 550
Other non-interest income / (1,114) / (2,190) / (1,875) / (2,986) / (3,355) / (8,706) / (4,403) / 535
Net interest & dividend income / 2,314 / 5,549 / (637) / 1,189 / 7,293 / 7,642 / 11,493 / 3,153
Total Revenue / 380 / 11,250 / (2,116) / 16 / 5,508 / 5,892 / 27,917 / 29,852 / 37,908

3Q08 total revenue as reported by the company was $16.0 million (in line with the Zacks Digest average). According to firms, the revenue was driven by net write-downs of $5.7 billion resulting from the sale of U.S. super-senior ABS CDOs and the termination and potential settlement of related hedges with monoline guarantor counterparties, net pretax gain of $4.3 billion from the sale of the 20.0% ownership stake in Bloomberg, L.P. , net write-downs of $3.8 billion, principally from severe market dislocations in September, including real estate-related asset write-downs and losses related to certain government-sponsored entities and major U.S. broker-dealers, as well as the default of a U.S. broker-dealer, net gains of $2.8 billion, due to the impact of the widening of MER's credit spreads on the carrying value of certain of long-term debt liabilities, which was similarly impacted by the severe market movements in September and net losses of $2.6 billion, resulting primarily from completed and planned asset sales across residential and commercial mortgage exposures.

Excluding the above items items, adjusted net revenue was $5.7 billion in 3Q08, down 31.0% y/y, reflecting the challenging operating environment.

According to management, the company continues to reduce exposures and de-leverage the balance sheet prior to the closing of the BAC deal. As the landscape for financial services firms continues to change and transition teams make good progress, firms believe even more that the transaction will create an unparalleled global company with pre-eminent scale, earnings power and breadth.

Provided below is the graphical representation of revenue segments:

Segment Revenue

In addition to the restructuring charge of $445.0 million recorded in 2Q08, an additional $39.0 million was recorded in 3Q08 related to headcount reduction initiatives, primarily in technology. 3Q08 amounts recorded in the business segments were as follows: $18.0 million in Global Markets and Investment Banking and $21.0 million in Global Wealth Management. The following discussion of business segment results excludes the impact of these restructuring expenses:

Global Markets and Investment Banking (GMI)

GMI recorded net revenue of ($3.2) billion in 3Q08, as the challenging market conditions resulted in net losses in Fixed Income, Currencies and Commodities (FICC) and lower net revenue in Investment Banking, offset by significantly higher net revenue in Equity Markets resulting from the Bloomberg gain. GMI's 3Q08 net revenue included a net benefit of approximately $2.8 billion (approximately $2.0 billion in FICC and $0.8 billion in Equity Markets) due to the impact of the widening of MER's credit spreads on the carrying value of certain of long-term debt liabilities.

Fixed Income, Currencies and Commodities net revenue was ($9.9) billion in 3Q08, as strong revenue from Rates and Currencies was more than offset by net losses related to CDO sale and termination and potential settlement of related monoline hedges, real estate-related assets, and net losses from credit spreads widening across most asset classes to significantly higher levels at the end of the quarter. FICC recorded significant losses as a result of severe market dislocations in September; including credit spread volatility and a default of a major U.S. broker-dealer. In addition, net revenue for other FICC businesses declined y/y, as the environment for those businesses was materially worse than the year-ago quarter.

Equity Markets net revenue for 3Q08, which included the Bloomberg gain and a net gain related to changes in the carrying value of certain long-term debt liabilities, was $6.0 billion versus $1.6 billion in 3Q07. Global Equity-Linked Products revenue increased approximately 14.0% y/y, driven by increased trading activity and heightened market volatility, more than offset by declines from Cash business, which experienced adverse market conditions, as well as Global Markets Financing and Services, which experienced declines in average balances, particularly in September. Private equity net losses were $289.0 million versus net losses of $61.0 million in 3Q07. Excluding private equity net losses, the Bloomberg gain and the net gain related to changes in the carrying value of certain long-term debt liabilities, Equity Markets revenue was down 19.0% y/y.