The Wall Street Journal reports that Merrill Lynch is to sell $4.4bn of common stock (with an option for $600m more) to Temasek, the Singaporean state owned investment company. And Fund manager Davis Selected Advisors will buy $1.2bn of common stock too. The firm has also sold its Chigaco-based capital lending business to General Electric, freeing up $1.3bn in capital.
The Merrill moves are seen as a prelude to further asset write-downs, which the firm is expected to announce early in the new year. Having already written off some $8.4bn in 2007 relating to US subprime lending assets, speculation is mounting that an additional $10bn may be written off in the fourth-quarter. Firm boss John Thain said in a statement that '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'.
Merrill's shares initially rose 4% on the news. Fox-Pitt Kelton analyst David Trone said that these investments 'signal that problems are significant, but that management is taking steps to get beyond them'. Other analysts feel that Merrill may have to consider selling off its retail brokerage operation, although Thain is understood to be reluctant to break up the empire. Other options could include the sale of the firm's 20% stake in Bloomberg, which could go for as much as $15bn.
Finally, Temasek has also now raised its stake in Standard Chartered, taking its investment up to 18% of the bank.