Merrill Lynch gets huge boost-6.2 Billion Singapor
Merrill Lynch gets huge boost
http://www.nydailynews.com/money/2007/12/25/2007-12-25_merrill_lynch_gets_huge_boost.html?page=1
THE ASSOCIATED PRESS
Tuesday, December 25th 2007, 4:00 AM
It hasn't taken John Thain long to put his stamp on the world's largest brokerage.
After being named chairman and chief executive of Merrill Lynch & Co. just three weeks ago, Thain on Monday secured a capital infusion worth up to $6.2 billion and sold off one of Merrill's lending units. His fast action came at a critical time; some analysts think Merrill is facing credit-related writedowns of $10 billion for the fourth quarter.
Merrill said it will receive a cash infusion from Singapore's Temasek Holdings and U.S. money manager Davis Selected Advisors. It also sold its commercial finance business to General Electric Co.'s finance arm for an undisclosed price.
But Merrill shares, which initially rose on news of the investment, fell as it became clear Temasek and Davis bought in at a 14 percent discount, the price Merrill apparently had to pay to bolster its balance sheet.
Thain initiated both deals upon taking over from ousted CEO Stan O'Neal on Dec. 1.
"One of my first priorities at Merrill Lynch was to strengthen the firm's balance sheet, and we have made great progress toward that by bolstering our capital position through these investments and our announced sale of Merrill Lynch Capital," he said in a statement.
Both steps are expected to help shore up Merrill's balance sheet, which has been battered by the global credit turmoil. Deteriorating mortgage-related investments and corporate loans caused the biggest loss in Merrill's 93-year history during the third quarter, as it suffered $8.4 billion of writedowns.
With fourth-quarter results set to be released in January, the investment and asset sale were seen as getting ahead of any potential bad news. And, it also demonstrates that Thain isn't wasting time getting the investment bank's financial house in order.
"On balance, this continues to signal that problems are significant, but that (management) is taking steps to get beyond it," said Fox-Pitt, Kelton analyst David Trone in a note to clients.
However, he said the total capital-raising effort would dilute existing Merrill shareholders by about 13 percent. Merrill shares slipped $1.64, or 3 percent, to $53.90.
Temasek, a government sponsored investment fund, will acquire a 9.9 percent stake at $48 per share for $4.4 billion - and can purchase an additional $600 million by March 28. Davis Advisors is a closely held company that was founded by former Bank of New York executive Shelby M.C. Davis. The stock purchase represents a 2.5 percent stake in the investment bank.
"We've seen what John Thain has done over his career, and he has a proven history of creating value for shareholders," said Ken Charles Feinberg, a co-portfolio manager at Davis who helped orchestrate the deal. "Over the long term, our shareholders will do very well."
While the Davis component of the deal is unusual - most institutions raising capital lately are doing so from state-owned funds - the need to raise money in and of itself was not unique to Merrill.
Global banks have written down an estimated $105 billion this year alone from exposure to subprime loans and other debt commitments. And, that has caused a number of financial companies to secure deals involving infusions from state-owned investment funds - mostly from Asia and
the Middle East.
Government-sponsored investment vehicles have invested more than $25 billion in Wall Street since the mortgage crisis began this summer. There was speculation last week Temasek would be the next to make a move.
Temasek has a track record of making large investments in financial institutions, with holdings in Britain's Standard Chartered PLC and South Korea's Hana Financial Group. It was set up in 1974 to manage Singapore's assets, and now controls a portfolio of over $100 billion
worth of investments.
It is not the only government fund making aggressive moves into high finance, though. Morgan Stanley last Wednesday announced a $5 billion investment from China's government-controlled investment vehicle to help replenish its capital.
In October, Bear Stearns Cos. agreed to a $1 billion investment from China's government-controlled Citic Securities Co. Citigroup Inc. received a $7.5 billion capital infusion from the investment arm of the Abu Dhabi government last month.
UBS AG last week announced that the Government of Singapore Investment Corp., the city-state's other state investment fund, is investing $9.75 billion for a 9 percent stake in the Swiss banking company.
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It was 6.2 Billion investment, instead of the 7 Billion I quoted...
What's .8 Billion when you are talking about America's FORMER TOP BROKERAGE FIRM. Becuase it is FOREIGN OWNED NOW.
TheCigMan
