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SINGAPORE: Singapore investment firm Temasek Holdings has pumped in an additional US$900 million (S$1.2 billion) in Merrill Lynch as part of the United States broker's latest capital-raising effort.
Temasek Holdings said in a statement on Tuesday that it has committed US$3.4b in the public offering by Merrill Lynch.
Myrna Thomas, Managing Director, Corporate Affairs, Temasek Holdings, said: "Temasek confirms its commitment of US$3.4 billion in the Public Offering by Merrill Lynch, a portion of which is subject to regulatory approval.
"The commitment includes a sum of US$2.5 billion arising from a reset payment which Merrill Lynch has agreed to pay to Temasek as an adjustment to the price of Temasek's original investment made in December 2007."
The announcement came in the wake of Merrill's July 17 report that it had racked up a net loss of US$4.89 billion for the second quarter, another sign of the devastation of the US real estate crash on financial markets.
The tarnished Wall Street star said on Monday it was selling off a large amount of asset-backed collateralized debt obligations (CDO) - the packaged US mortgage securities which have ravaged bank balance sheets around the world.
The move took US$11.1 billion off of its books, but only after scoring a huge loss on the sale. Merrill said the CDOs had a face value of US$30.6 billion and were sold to Lone Star Funds, a specialist in distressed assets, for just US$6.7 billion.
"The sale of the substantial majority of our CDO positions represents a significant milestone in our risk reduction efforts," said Merrill chairman and CEO John Thain in a statement.
Thain said the CDO sale and the capital hike will "materially enhance the company's capital position and financial flexibility going forward."
The company said on Monday it expects to record a pre-tax write-down in the third quarter of about US$5.7 billion, which includes a US$4.4 billion loss on the CDOs being sold.
Merrill had already raised US$15.3 billion from capital markets earlier this year, including share sales to Temasek.
Temasek's earlier investment though came with a requirement that if Merrill raised more capital within 12 months at a price lower that the US$48 that the Singapore fund paid, it would be compensated for the difference.
Tuesday’s announcement meant that Merrill has to pay Temasek US$2.5 billion - which Temasek is turning around to put back into Merrill, along with another US$900 million.
Merrill's new fundraising comes on the heels of announcements earlier in July that it was shedding assets to raise new funds, including its 20 per cent stake in financial news and data group Bloomberg for US$4.4 billion, and its controlling interest in Financial Data Services for at least US$3.5 billion.
In its second-quarter report, it also wrote down over US$9 billion in soured investments, largely linked to bets on US mortgage investments that have been hit by a horrific housing slump after years of sizzling growth.
Merrill's shares plunged 11.6 per cent Monday ahead of the news, falling US$3.19 to close at US$24.33.
- CNA/AFP/yb
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