“Merrill Lynch, facing financial pressure, is poised to undertake one of the biggest makeovers in its 86-year history,” writes Charles Gasparino in today’s Wall Street Journal.

“The nation’s largest brokerage house is setting the stage for a significant retrenchment in its global operations, a move that could lead to the elimination of as many as 10,000 jobs, or 15% of its work force, a fourth-quarter charge of more than $1 billion and a retreat from several prominent business lines, senior people at the firm say.”

“Under the direction of newly appointed President E. Stanley O’Neal, senior executives have launched a major examination of the company’s operations, these people say, to determine if Merrill should continue brokerage operations in such countries as Japan, Canada, Australia and India, or should significantly downsize its businesses there. Also under review: Merrill’s U.S. operations, including its asset-management group, and the size and scope of its trading and investment-banking operations.”

“The examination is in the early stages, and it is unclear which businesses would be hit hardest or when any final decisions would be made. What is clear is that the move likely will lead to a downsizing of Merrill, which has increased its staff more than 14% during the past four years; the company has 68,200 employees and has cut 3,800 jobs this year.”

” ‘In a deteriorating revenue environment, we’ve been engaged in a review of all our businesses to make sure they’re sized properly for the market opportunity,’ Merrill said in a statement. ‘While the pace of this review is accelerating, the decisions will be made on a business-by-business basis and we have no overall, company-wide head-count reduction target.’ “

“The predicament at Merrill underscores the difficulty facing many Wall Street firms as they attempt to pick up the pieces after the terrorist attacks in the U.S. Stock trading, underwriting and brokerage businesses, already slow before the Sept. 11 attacks, have been severely pinched. The U.S. stock markets were shut for four days following the attacks, and some investors have frozen their investment activities. Expenses have soared, as Merrill and others were forced to relocate temporarily from their damaged offices in lower Manhattan. Analysts expect Merrill’s third-quarter earnings, to be announced Thursday, to fall 56% from the year-earlier profit. At 4 p.m. Wednesday in New York Stock Exchange composite trading, Merrill was up 39 cents at $45.19, up from the 52-week low of $33.50 set Sept. 21, but well below the 52-week high of $80 set in January.”

“Even before the attacks, Wall Street firms were scrambling to cut their work forces. Among them, discount brokerage house Charles Schwab, of San Francisco, had set job cuts of 3,900, New York investment bank Morgan Stanley had set 1,500 cuts, and Bear Stearns, also of New York, had cut 346 jobs. This month, the Credit Suisse First Boston unit of Switzerland’s Credit Suisse Group announced that it would cut 2,000 jobs; at Goldman Sachs Group, of New York, executives are considering cutting 400 jobs after already having planned this year to let about 150 investment bankers go.”

“Merrill’s plans come as its executives grapple with a vexing issue: Should the company continue to be all things to all people, or should it focus its operations in a few, profitable areas? Since the late 1980s, Merrill has operated in far-flung places across the globe, setting up offices in Japan, India, Australia and Canada and dealing directly with investors there by buying local brokerage houses or entering joint ventures with foreign companies. At home, Merrill sought to dominate every underwriting category, even those where the company boasted top billing but was losing money in the process.”

“The pronounced slowdown in financial businesses world-wide has changed Merrill’s view. ‘The feeling at the firm these days is that Merrill should be doing a few things well,’ a senior Merrill executive said.”