Merrill Lynch shored up its capital base by as much as $7.5 billion after selling a stake to Singapore's government and an asset manager, and unloading much of a lending business, as it wrestles with huge subprime mortgage losses.
Merrill plans to sell up to $6.2 billion in shares to Singapore's Temasek Holdings and asset manager Davis Selected Advisers. Both investors bought their stakes at $48 a share, or more than 13 percent below where the stock closed last Friday.
These deals are likely a prelude to another large writedown for Merrill Lynch in the fourth quarter. Some analysts estimate the hit will be bigger than the $8.4 billion writedown Merrill recorded in the third quarter.
Fox-Pitt Kelton analyst David Trone estimated the deal's dilution to existing shareholders would be about 13 percent from the total potential investment. Trone and other analysts estimate Merrill's potential losses on mortgage-related securities could exceed $16 billion in 2007.
"Coming into this debacle the company had several billion in excess equity capital," Trone said in a research note. "On balance, this continues to signal that problems are significant, but management is taking steps to get beyond it."Page 1 of 4 | Next Page