Merrill Lynch & Co., the world’s biggest securities firm, said third quarter profit fell 8% as stock and bond trading declined and investment-banking revenue slipped.

Net income dropped to $920 million, or 93 cents a share, from $1 billion, or $1 a year earlier, the New York based company said in a statement. Profit was the lowest since the first quarter of last year.

“It was a disappointing quarter because business slowed,” said Mark Bronzo, who manages $1.2 billion at Gartmore Separate Accounts LLC in Irvington, N.Y., and owns about $48 million of Merrill stock.

Merrill’s chief executive officer, Stanley O’Neal, 53, in charge of the firm since July 2001, is searching for ways to boost earnings after he generated record profit last year by eliminating about 24,000 jobs as financial markets slumped. He now is investing in businesses less dependent on the stock market and last quarter acquired the energy-trading arm of Entergy-Koch LP, returning to a niche Merrill exited more than three years ago.

“The conditions driving market sentiment and uncertainty are still with us,” the chief financial officer, Ahmass Fakahany, said on a conference call with analysts and investors. “The conditions that created those challenges are still with us.”

Net revenue for the quarter dropped 3% to $4.8 billion. Total noninterest expenses rose 1.2% to $3.6 billion. Merrill was forecast to earn 92 cents a share, according to the average estimate of 16 analysts surveyed by Thomson Financial.

Shares of Merrill rose $1.48 to $52.48 in New York Stock Exchange composite trading.

The shares have fallen 12% this year, the fourth-worst performance on the 12-member American Stock Exchange Securities Broker/Dealer Index. Merrill, with more capital than any American securities company, has underperformed firms such as Goldman Sachs Group Inc. and Bear Stearns Cos.

Profit in Merrill’s global markets and investment banking business, run by Greg Fleming and Dow Kim, fell 22% to $771 million. The unit, which includes the firm’s trading and investment banking operations, suffered the biggest decline in the quarter.

Equity trading revenue fell 15% to $652 million and debt trading declined 11% to $1 billion during the quarter. NYSE volume declined to its lowest level in almost three years during the quarter amid investor concerns about the war in Iraq, record high oil prices, and rising interest rates. The firm’s average trading value at risk was down “slightly” from the second quarter, Mr. Fakahany said on the conference call.

Investment banking revenue fell 1.8% to $666 million as the firm collected $537 million in underwriting fees and $129 million for advising on mergers and other transactions. Mr. Fakahany said the firm’s backlog of investment banking business “remains quite solid” at the beginning of the fourth quarter.

In Merrill’s brokerage business, run by James Gorman, earnings fell 10% to $409 million amid higher legal expenses and a drop in trading. The company hired 100 new brokers, bringing its sales force to 14,100. Brokerage assets were little changed from the second quarter at $1.5 trillion.

Merrill’s decline compares with an 88% drop in earnings at Morgan Stanley’s brokerage unit, where profit tumbled to $22 million.

Earnings in Merrill’s asset management business, run by Robert Doll, rose 59% to $110 million as average assets levels rose. The unit had $478 billion under management at the end of the quarter, up 1.1% from a year ago.

Compensation and benefits costs equaled 48.8% of Merrill’s net revenue in the first three quarters of the year. The firm added about 600 employees during the quarter, bringing its workforce to 49,900.The increase came as the company added brokers and trainees.

Return on equity, a measure of how well the firm reinvests earnings, was 14.6% year-to-date, up from 13.7% in the first nine months of 2003. Through the first three quarters, the firm’s pretax profit margin was 26.5%, compared with 24.3% in the same period last year.

The Securities Industry Association said domestic pretax profits at NYSE and Nasdaq-listed securities firms may drop 22 percent this year to $18.9 billion. The trade group of 600 firms estimated in April that the industry would earn at least $28.4 billion before taxes.

Morgan Stanley, Goldman, Bear Stearns and Lehman Brothers Holdings Inc. all reported third-quarter earnings last month. Morgan Stanley’s third-quarter profit dropped 34%, while Bear Stearns’s net income fell 10%. Goldman and Lehman said earnings rose 30% and 5.2%, respectively.