Merrill Lynch (Asia Pacific), the regional arm of the US-based investment bank, said its pre-tax profit slid 61 per cent to US$16 million last year, hurt by a massive provision related to its former errant employee Kevin Wallace. The bank took a US$45 million charge for the compensation paid to clients of Wallace, the Singapore-based private banker arrested last year on charges of unauthorised trading, falsifying client statements and forging client signatures. The operating performance was far more impressive, with earnings before the special charge rising to US$61 million, a 49 per cent jump from the US$41 million profit made in 1996. The increased profitability at the operating level came even as Asian stock, bond and currency markets plunged in the second half of last year. The results were published in Merrill Lynch & Co's annual report, filed with the Securities and Exchange Commission in New York this week. Merrill Lynch's chief operating officer for the Asia Pacific region Kevan Watts said: 'It was our best year in the region . . . Both our institutional and private client businesses have performed very well. 'The only thing that took the bottom line down was the provision - but that was not new and we try to look through that.' Merrill Lynch (Asia Pacific) controls Merrill Lynch's operations including Hong Kong, the mainland, Singapore, Indonesia, Thailand and India. Wallace, an American citizen in his mid-40s, had been employed as a financial consultant with Merrill Lynch's private client group servicing high net-worth individuals. He left the company in May, but it was only after his departure that Merrill Lynch became aware he had engaged in inappropriate conduct in some of his clients' accounts. Wallace was arrested in Hong Kong in June after arriving to witness the handover. He appeared in court in September on a charge of money laundering involving a sum of HK$7 million, but the case was adjourned so the prosecution could gather further evidence. Merrill Lynch revealed in September it had paid out US$45 million to disgruntled clients, though at the time it said not all claims had been settled. The bank lost two lawsuits in Singapore in January and was ordered to repay M$100 million (about HK$195.2 million at the present rate) to two of Wallace's former Malaysian clients. Mr Watts said the performance of the regional operations had suffered some slowdown in the final quarter due to Asia's economic turmoil, but the diversity of the group's interests in the region had limited the overall effect. He said: 'One of our best strengths we have is the great depth of our business.' Aside from the provision, the Kevin Wallace affair did not have an adverse effect on the bank's private client business, he said. In Japan, Merrill's pre-tax profits rose 18 per cent to US$140 million from US$119 million in 1996. Globally, the US-based securities firm earned a record US$1.91 billion last year, an 18 per cent increase over 1996. MIXED BAG Pre-tax profit falls 61 per cent to US$16 million Earnings before special charge rises 49pc to US$61 million Diversification key to improved performance despite downturn
