Merrill Lynch & Co, reeling from the biggest loss in its 93-year history, may receive a cash infusion of as much as US$5 billion from Singapore's state-owned Temasek Holdings Pte, the Wall Street Journal reported.
Temasek's board has given preliminary approval for the investment, the report said, citing unnamed sources. Merrill chief executive John Thain, who took over Dec. 1, would join Citigroup Inc, Morgan Stanley and UBS AG in tapping a sovereign wealth fund to shore up capital.
Government funds "are making use of the crisis to buy some of these banks on the cheap," said Nicholas Yeo, who helps manage more than US$40 billion in Asian equities at Aberdeen Asset Management in Hong Kong. "Whether they're buying cheaply enough is hard to say."
Merrill on Oct. 24 announced US$8.4 billion of writedowns on mortgage-related investments and corporate loans. The firm, which ousted Stan O'Neal as CEO in October, may report an additional US$8.6 billion writedown for the fourth quarter, according to David Trone, an analyst at Fox-Pitt Kelton Cochrane Caronia Waller.
Governments in the Middle East and Asia have agreed to invest about US$25 billion in Wall Street firms since banks began to disclose subprime losses. Merrill's shares slumped 42 percent in New York this year, cutting its market value to US$46.7 billion. The firm reported a US$2.2 billion loss for the third quarter.
Rob Stewart, a Hong Kong-based spokesman for Merrill, declined to comment. Temasek, the biggest shareholder of Standard Chartered Plc and DBS Group Holdings Ltd, also declined to comment.
Citigroup Inc, the biggest US bank by assets, said on Nov. 27 that Abu Dhabi would invest US$7.5 billion in the New York-based company. State-controlled China Investment Corp is buying an almost 10 percent stake in Morgan Stanley for US$5 billion after the second-largest US securities firm reported a loss of US$9.4 billion from mortgage-related holdings on Dec. 19.
UBS, the biggest Swiss bank, made an agreement this month to replenish its capital with 13 billion Swiss francs (US$11.2 billion) from the Government of Singapore Investment Corp and an unidentified Middle Eastern investor.
Temasek is in advanced talks with Merrill about the investment, although pricing, timing and regulatory issues need to be negotiated, the Wall Street Journal reported. The fund manages more than US$100 billion in assets, including controlling stakes in seven of Singapore's 10 biggest companies by market value.
They "may feel there are bargains out there," said David Cohen, an economist at Action Economics in Singapore. "They can write big checks and these banks appreciate that."
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