Merrill Lynch yesterday reported record second-quarter earnings, saying it had largely avoided the damage that rivals suffered in fixed-income markets in April and May.

Investment banks including Citigroup, JPMorgan Chase and Morgan Stanley had warned that much of the second quarter was marked by weak conditions for capital markets, including the downgrading of General Motors and Ford bonds to "junk" status.

Merrill managed to dodge most of the trouble, however, saying that revenue from debt markets, including fixed-income, currency and commodity trading, rose by 30 per cent from a year earlier and declined by just 2 per cent from the record reported in the first quarter.

Merrill said it had success with trading credit-related securities and benefited from the contribution of a recently acquired commodities business, although the results were in part offset by lower revenue from trading interest-rate products.

David Trone, an analyst at Fox-Pitt, Kelton, said he believed the trading results boded well for the second half, which "should be better than many expect".

"It was an environment that had its challenges, without question," said Jeff Edwards, chief financial officer. "But many of the investments we have made in the past few years helped us."

Overall, Merrill's investment banking division, including trading, underwriting and advisory work, posted second-quarter net revenue of $3.4 billion (€2.8 billion), up 30 per cent from a year earlier and 4 per cent from the first quarter. The figure is the highest since the first quarter of 2000.

Merrill's brokers produced net revenue of $2.6 billion and pretax earnings of $457 million, up 7 per cent and 5 per cent, respectively, from a year earlier.