Despite the recent management turmoil at Merrill Lynch, its profit from bond trading has been the envy of rival brokerage firms. Propelling the performance has been a group led by Barry Wittlin, astar derivatives trader who has quickly garnered attention as one of the top traders on Wall Street. But Merrill’s bond-trading successes can be attributed to more than Wittlin’s technical masteryand steely nerves. Recently, traders have also benefited from an unusual source: Merrill’s internal bank, which was established in the late 1980’s to collect deposits from its vast client base. InJune 2002, Merrill set up a unit within the investment banking and global markets division that gives its star traders increased access to the bank’s $68 billion in deposits The unit reports to JohnQua, who heads the bank, and Dow Kim, Wittlin’s boss, who was promoted this week from his position as head of the firm’s debt division to co-head of Merrill’s institutional banking business. Thesuccess of Wittlin and the creation of the unit underscore the extent to which Merrill has begun to rely more than ever on bond trading. Such a high-risk, high-return strategy is common to many WallStreet investment banks, especially Goldman Sachs. Merrill, however, has tended to be more hidebound in this respect. There has, in fact, never been much of a cult surrounding the trader at Merrill.Part of it comes from the elephant-like memory of its top executives: In 1987, a bond trader lost $287 million on a series of trades. In 1998, Merrill bond traders had big losses when bond marketstumbled after problems at the Long-Term Capital Management hedge fund. In the second quarter of this year, principal transactions, which are made up mostly of derivatives and debt trading, increased51 percent, to $1.1 billion. Wittlin’s prowess and the fresh source of capital coming from the bank have been the main contributors to this profit boom, Merrill bankers said. In February, Wittlin’sresponsibilities were expanded when he assumed sole responsibility for the group. In recent months, Wittlin’s trading successes have raised eyebrows across Wall Street, as has his salary. Accordingto one banker who has worked with Wittlin, said he was paid close to $10 million last year, making him one of Merrill’s most highly paid executives. Merrill declined to comment on his salary.

Barry is an extraordinary trader, said a former Merrill executive who has worked closely with him. He makes bets and then cuts his position when they go wrong. He never lost money in any single month while I worked with him.

Wittlin declined to comment on his trading responsibilities.