Merrill to Sell $8.5BB in Shares in Effort to Shore Up Credit Rating
The third-biggest U.S. securities firm, Merrill Lynch & Co., plans to sell $8.5 billion of stock and liquidate $30.6 billion of bonds at a fifth of their face value to shore up credit ratings imperiled by mortgage losses.
In a statement yesterday Merrill said Temasek Holdings Pte., the Singapore-owned fund that became the New York-based company's biggest investor by acquiring shares in December, will buy $3.4 billion of the new stock. Merrill is paying Temasek $2.5 billion to offset losses on its earlier investment. Merrill will also book $5.7 billion of write-downs in the third quarter.
Almost $19 billion of net losses in the past year forced Chief Executive Officer John Thain to backtrack from assurances that the firm had enough capital to weather the credit crisis. Since taking the post in December, Thain has raised $30 billion in an effort to keep pace with mounting charges on mortgage bonds amassed by his predecessor, Stan O'Neal. Standard & Poor's cut the firm's debt rating last month and signaled that more downgrades were possible.
"It does mark an attempt at curing the problem but at a tremendous cost to existing shareholders,'' said Charles Peabody, an analyst at Portales Partners LLC in New York who recommends selling Merrill shares. "How can you be pleased by that? It's a necessity.''
UBS AG analyst Glenn Schorr estimates Merrill will report a third-quarter loss of $4.80 a share because of "significant dilution'' from the stock sale. Schorr, who has a "neutral'' rating on Merrill, previously estimated earnings of 72 cents.
Published on July 29, 2008
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