It’s Official: $6.2 Billion Investment in Merrill by Singapore’s Temasek, Davis

Merrill made the announcement of its $ 6.2 billion (originally rumored to be $5 billion) cash infusion by the sovereign wealth fund Temasek and New York fund manager Davis Select Advisors today. The firm is raising additional capital through the sale of its commercial finance business to General Electric Capital. From Bloomberg:

Merrill Lynch & Co., reeling from the biggest loss in its 93-year history, will receive a $6.2 billion cash infusion from Singapore’s sovereign wealth fund Temasek Holdings Pte. and Davis Selected Advisors LP.

Temasek will invest as much as $5 billion and New York- based Davis will buy $1.2 billion of Merrill stock, the brokerage firm said in a statement today….

Merrill, the third-largest U.S. securities firm, announced $8.4 billion of writedowns Oct. 24 because of mortgage-related investments and corporate loans. The New York-based firm, which then ousted Stan O’Neal as CEO, may report an additional $8.6 billion writedown for the fourth quarter, according to David Trone, an analyst at Fox-Pitt Kelton Cochrane Caronia Waller.

“Many take the view that the worst is probably over,” said Teng Ngiek Lian, who oversees $3 billion as head of Target Asset Management in Singapore. “Merrill’s valuation looks interesting. They’ve written down their books to a comfortable level and I’m sure Temasek would have done its homework.”

Merrill agreed earlier today to sell its commercial finance business to General Electric Co.’s finance arm for an undisclosed price as part of a plan to free up capital after subprime losses….

Temasek’s planned investment in Merrill was reported Dec. 21 by the Wall Street Journal. Merrill rose 1.9 percent in New York trading after the report, the first gain in seven days….

llion of the nation’s foreign reserves.

“The valuation for banks seems very reasonable, which is why the sovereign wealth funds are keen,” Target Asset’s Teng said. “We, too, are more bullish about banks generally.”

Investments by sovereign funds may give some respite to banking stocks battered by at least $96 billion of credit- related related losses at the world’s biggest financial institutions.

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  1. Anonymous

    Re: The valuation for banks seems very reasonable

    Yah, better buy on the dips as the valuations continue to become more and more reasonable — if you dont’t take into account the hit to EPS for these types of cash infusions to make up for very, very poor management! That to me sends up a very, very LARGE red flag, i.e, these bankers that failed in every possible way in regard to risk management now are pumping and hyping how they are a better investment now, and thus people should cost average to take advantage of their inability to manage!

  2. Anonymous

    This seems related:

    “If hedge funds are exploiting market inefficiencies, this means that other investors are supplying those inefficiencies. This means that, unfortunately, we can’t all profit from exploiting inefficiencies. Therefore, there is a natural cap on the potential size of the hedge fund industry, assuming that hedge funds are indeed exploiting inefficiencies rather than taking in risk premiums.”

  3. Jens Söderberg

    “-That to me sends up a very, very LARGE red flag, i.e, these bankers that failed in every possible way in regard to risk management now are pumping and hyping how they are a better investment now, and thus people should cost average to take advantage of their inability to manage!”

    As i see it, it’s not a matter of “pumping” or “hyping” In this stage of the game, it’s more a game of global damage control. If the US economy where to faulter, a lot of people would get hurt. As for a example, say most of the world. What i’m saying here is not exactly new, but as i see it. This is what is being reported in small print all around the world.

    ..But’s thats just me on my most gloomy side, it’s christmas time and i do belive this is the time of hope.

  4. NC Jim

    I am surprised at the GE purchase. GE was once described as 50% hedge fund but I was of the impression that Jeff Immelt was trying to reduce exposure to the credit cycle especially as CRE seems be following residental into the tank. I don’t understand what GE is buying and Immelt is the one making the big bucks but ,as a GE stock holder, I am now a proud owner of a business I was happy to have avoided (until now).

    Oh well …

    Merry Xmas

  5. LaSalle Street

    David Faber on CNBC said that Tamesak will pay $48/share for 10% of the company. The stock was $56 when this annoucement was made and its 52 week low was $50.50 on November 21.

    Wow! They are giving this company away. I’ve never heard of someone selling their company for a 20% DISCOUNT to current market prices. Such deals are suppose to be done at a premium.

    Also the terms of selling Merrill Capital to GE was not disclosed. Assume they gave it away to GE. If it was a good deal for Merrill shareholders you can bet the terms would have been made public.

    What does it mean? Merrill is desperate for capital. So depserate that tehy will give away chunks of their company to get it.

    Why would you wnat to buy this stock at $55 when Tamsek gets it for $48? Merrill just told you you are a chump for buying this at anything less than a big discount from $48.

    Lastly, with this massive firesale to raise capital, care to guess at what they are telling us their Q4 writedowns will be?

  6. Anonymous

    So let me see how this works – I give you $6.2 billion in exchange for stock at $48 a ticket, short against the box, pocket $8/share immediately and have all my money back. That is an instantaneous and risk free 16.6% return!

    What a blatently moronic comment from Teng Lian in the article….they did their homework…..indeed…..too bad Lian didnt……….

  7. Anonymous

    Great point about the discount @ $48, but then again, these guys may have just grabbed a falling knife and that discount may not look too good in another month! Also, that discount may reflect some offbook valuations related to future writedowns and IMHO, only idiots are buying now, because the books are not adjusted for impairments and thus the cashburn ahead may be a lot worse than is suggested!

  8. NC Jim

    From Reuters:

    “GE Capital will buy Merrill Lynch Capital’s corporate finance, equipment finance, franchise, energy and health-care finance units. Merrill Lynch Capital’s commercial real estate finance unit is not part of the transaction.”

    Note to Jeff Immelt – Sorry I questioned you in an earlier post.

    My bad.


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