Merrill Lynch became the latest Wall Street bank to grab a financial lifeline from a foreign government, agreeing on Monday to sell US$5 billion in new stock to Temasek Holdings, Singapore's sovereign investment company, and a smaller stake to a domestic firm, as the fallout from the mortgage mess continues to spread.
The move comes as analysts predict that Merrill, the nation's largest brokerage, will write down its mortgage investments by an additional US$8 billion or more in the fourth quarter. Such losses could force the firm to raise even more capital.
Merrill Lynch also agreed on Monday to sell most of its commercial finance business, Merrill Lynch Capital, to the General Electric Co in a deal that would raise about US$1.3 billion for other parts of its business.
"One of my first priorities at Merrill Lynch was to strengthen the firm's balance sheet, and today we have made great progress towards that by bolstering our capital position through these investments and the sale of Merrill Lynch Capital," John Thain, Merrill's chairman and chief executive, said in a statement.
To raise US$5 billion, Merrill Lynch will sell new stock to Temasek at a discount to the recent market price. It will sell an additional US$1.2 billion in discounted shares to Davis Selected Advisers, a big money management firm based in Tucson, Arizona. Together, these two investors will gain a stake of less than 10 percent in Merrill. Neither will have a role in the management of the firm nor any presence on its board.
Merrill may have to strengthen its capital position further given the likelihood of widening losses on its mortgage investments.
"If, after fourth-quarter earnings, we find that we need to enhance it further, we will," said a person close to the situation.
While news of Monday's deals initially lifted its stock, the shares quickly wiped out their gain to close down 2.95 percent at US$58.90 in a holiday-shortened session. By selling new stock, Merrill will dilute the stakes of existing shareholders.
Temasek, which is controlled by Singapore's finance ministry and manages a portion of the city-state's foreign exchange reserves, has been stepping up its investments inside and outside Asia. In September it was invited by Barclays of Britain -- along with the China Development Bank -- to become shareholders, in exchange for a cash infusion that Barclays needed to improve its offer for the Dutch bank ABN Amro.
Other sovereign wealth funds have also swooped down on weakened Western financial companies. Singapore's lesser-known government fund, the Government of Singapore Investment Corp, recently agreed to invest US$9.7 billion in UBS. Citigroup is selling a US$7.5 billion stake to the Abu Dhabi Investment Authority. And last week, Morgan Stanley agreed to sell a US$5 billion stake to the China Investment Corp.
While they are based on opposite sides of the world, both Temasek and Davis have a record of buying beaten down stocks and holding them for long periods. Both also have significant investments in financial services firms. Temasek's holdings are largely in Asia. Davis has big stakes in blue-chip companies like American Express, AIG and JPMorgan Chase.
QUIET START: Nearly a week after applications opened, agencies did not announce or promote the program, nor did they explain how it differed from other visitor visas Taiwan has launched a six-month “digital nomad visitor visa” program for foreign nationals from its list of visa-exempt countries who meet financial eligibility criteria and provide proof of work contracts. To apply, foreign nationals must either provide proof that they have obtained a digital nomad visa issued by another country or demonstrate earnings based on age brackets, the Bureau of Consular Affairs said. Applicants aged 20 to 29 must show they earned an annual salary of at least US$20,000 or its equivalent in one of the past two years, while those aged 30 or older must provide proof they earned US$40,000 in
AIR DEFENSE: The Norwegian missile system has proved highly effective in Ukraine in its war against Russia, and the US has recommended it for Taiwan, an expert said The Norwegian Advanced Surface-to-Air Missile Systems (NASAMS) Taiwan ordered from the US would be installed in strategically important positions in Taipei and New Taipei City to guard the region, the Ministry of National Defense said in statement yesterday. The air defense system would be deployed in Taipei’s Songshan District (松山) and New Taipei City’s Tamsui District (淡水), the ministry said, adding that the systems could be delivered as soon as the end of this year. The US Defense Security Cooperation Agency has previously said that three NASAMS would be sold to Taiwan. The weapons are part of the 17th US arms sale to
SERIOUS ALLEGATIONS: The suspects formed spy networks and paramilitary groups to kill government officials during a possible Chinese invasion, prosecutors said Prosecutors have indicted seven retired military officers, members of the Rehabilitation Alliance Party, for allegedly obtaining funds from China, and forming paramilitary groups and assassination squads in Taiwan to collaborate with Chinese troops in a possible war. The suspects contravened the National Security Act (國家安全法) by taking photos and drawing maps of key radar stations, missile installations and the American Institute in Taiwan’s headquarters in Taipei, prosecutors said. They allegedly prepared to collaborate with China during a possible invasion of Taiwan, prosecutors said. Retired military officer Chu Hung-i (屈宏義), 62, a Republic of China Army Academy graduate, went to China
UNITY MESSAGE: Rather than focusing on what Trump said on the campaign trail about Taiwan, Taipei should be willing to engage with the US, Pompeo said Taiwan plays a key role in Washington’s model of deterrence against China, former US secretary of state Mike Pompeo said in a speech in Taipei yesterday. During US president-elect Donald Trump’s first term, “we had developed what we believe was a pretty effective model of deterrence against adversaries who wanted to undermine the set of rules and values that the people of Taiwan and the people of the US hold dear,” Pompeo said at a forum organized by the Formosa Republican Association. “Succeeding in continuing to build this model will not solely rest at the feet of president Trump and his team,
RSS