If you want to talk about the world of investment banks, broker-dealers, and asset managers, sooner or later you'll have to talk about Merrill Lynch (NYSE:MER). While companies like Citigroup (NYSE:C) and Bank of America (NYSE:BAC) are considerably larger overall (in terms of both market cap and revenue), Merrill Lynch is the largest of those that don't have retail banking franchises.

The fourth quarter was pretty kind to this big boy. Net revenue grew 15% and earnings rose 25% as the company boosted its pre-tax margin from 26.3% to 32.5%. Return on equity also jumped nicely, coming in at an annualized level of 18.2%.

Merrill Lynch's growth was solid across the board, but the trading and banking business, the company's largest source of revenue and earnings, led the way. Revenue and pre-tax earnings grew 17% and 53%, respectively, as strong equity performance offset lower (but still positive) growth in debt and investment banking. Private client services and investment management each delivered double-digit growth in their own right, and assets under management increased by a high single-digit rate.

In my view, the question of whether Merrill is a good buy today has to do with how much further it can drive results. The post-bubble years have been hard on a lot of investment firms, and Merrill has been something of a laggard in terms of earnings growth and its returns on capital.

And there's the trick. Merrill is highly profitable -- with a pre-tax margin above Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) and virtually equal to Lehman Brothers (NYSE:LEH) -- but its return on equity is in the high teens while these competitors' is in the mid-to-high 20s. That makes me wonder whether Merrill has excess capital -- capital that could be used for acquisitions or internal growth, or both, or paid out to shareholders.

No doubt Merrill has a good franchise; it's a top-five player in investment banking and trading, and a top-10 asset manager. What's more, growth prospects in the capital markets look pretty promising, and most companies are reporting solid deal pipelines. The question, though, is whether Merrill can deliver better returns on capital. If so, there's a good reason to be bullish here.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).