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.