Merrill is expected to get $3 billion to $4 billion, much of it from a Middle Eastern government investment fund. Citi could get as much as $10 billion, likely all from foreign governments.
Such large investments would be the latest sign big banks are undergoing a rapid recapitalization to stabilize their shaky financial foundations. Already, foreign governments have invested about $27 billion in Merrill, Citi, UBS AG and Morgan Stanley.
The new investments are sure to complicate the so-far successful efforts of Wall Street firms to keep these purchases below the Washington radar screen. Multiple investments from government funds will get closer scrutiny from regulators for signs the funds could work together and exercise control. Any questions will lengthen the time regulators need to review the deals. And federal lawmakers, who've given the string of government investments a pass, will take another look in this election year.
Both Citi and Merrill are scrambling to nail down the details before they report earnings next week that are expected to include additional losses stemming from their exposure to mortgage-related investments. Together, these additional losses could reach as much as $25 billion.
The board of Citigroup is expected to meet on Monday, a day before it reports earnings, and to discuss cutting the firm's hefty dividend in half. This could save more than $5 billion a year. Citigroup has repeatedly said its dividend was safe. But Vikram Pandit, its new chief executive, is seen as more willing than his predecessor to take radical steps. He also is expected to announce major layoffs.