Merrill Lynch Expecting Capital Infusion After Facing Billions of Mortgage-Related Write-downs
Facing the likelihood of billions of dollars in additional mortgage-related write-downs in the fourth quarter, Merrill Lynch & Co. is expected to become the latest financial firm to get a capital infusion from an Asian government investment fund.
Temasek Holdings Pte. Ltd., a Singapore state-owned investment company, is in advanced talks to inject as much as $5 billion into Merrill, a person familiar with the situation said.
The news comes amid analyst predictions that mortgage write-downs at Merrill may double with another $8 billion or more in the fourth quarter -- the latest sign that Wall Street isn't out of the subprime woods yet. Temasek's board has given preliminary approval to the investment in Merrill, although pricing, timing and regulatory issues remain to be negotiated, the person familiar with the situation said. As such, a deal may still not materialize. It is also possible that Merrill may be in discussions with other government investment funds in addition to Temasek.
A Merrill spokeswoman had no immediate comment. A Temasek spokeswoman declined to comment.
Temasek, which had assets of about $108 billion as of the end of March, is one of the oldest and most prominent of a group of "sovereign wealth" funds that are using cash piled up from exports or oil sales to become a potent new force in global capital markets. Created in 1974 to invest in Singapore, Temasek in recent years has been increasing its investments abroad. It has been particularly active in China, where it has bought stakes in several big government banks and is planning to invest $1 billion in a private equity fund run by star dealmaker Fang Fenglei.
Merrill has been badly hit by the downturn in the U.S. housing market, getting stuck with billions of dollars in asset-backed securities that are now worth a fraction of their value a few months ago. Merrill's stock has been hammered, falling 41% this year, and its market capitalization now stands at roughly $47 billion, so a $5 billion investment would represent a significant stake in the company. China's $5 billion investment in Morgan Stanley Wednesday helped bolster that firm's shares.
A further $8 billion write-down at Merrill could take its total mortgage hits to $15.9 billion for the second half of 2007. Merrill Chief Executive Stan O'Neal was ousted in October after disclosing the third-quarter losses. One of the analysts projecting the new write-down, Susan Katzke of Credit Suisse Group, predicted that it could prompt Merrill to seek a capital infusion or sell assets to shore up its balance sheet.
Source: Source: Wall Street Journal | Published on December 21, 2007
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