Bankruptcy

Merrill Writes Down 7.5 Billion and Sells New Stock to Singapore

By J. Michael McBride

Brokerage firm Merrill has announced that it has a third quarter write-down of 5.7 billion and at the same time, as part of this effort to raise capital and face these write-downs, it is selling 8.5 billion in new stock. The primary buyer of the new shares is the government fund of Singapore. See this article from Reuters Online for more information about this latest announcement from Merrill:
http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSN2818295020080728?feedType=RSS&feedName=rbssFinancialServicesAndRealEstateNews&rpc=22&sp=true.

Quote:

“The Wall Street investment bank and brokerage announced its plans less than two weeks after posting a $4.9 billion second-quarter loss, hurt by more than $9 billion of write-downs.

Merrill said its stock sale includes $3.4 billion to Singapore's state-run Temasek Holdings Pte Ltd TEM.UL, one of its largest investors, and may grow to $9.8 billion to meet demand. Management also plans to buy 750,000 shares, it said.

Monday's write-down and plans to raise capital may raise further questions about Chief Executive John Thain's ability to turn around Merrill. The company has lost $19.2 billion in the last year and suffered more than $40 billion of write-downs from subprime mortgages and other risky debt.”

Also, here is an article from MarketWatch online which explains the ripple effect of Merrill’s decision to price its CDO’s at a more realistic figure (that is, 22 cents on the dollar):
http://www.marketwatch.com/news/story/story.aspx?guid=%7BB4E21A77%2DF6CB%2D4651%2DBDC2%2D6B490C6F0D26%7D&siteid=rss

Quote:

“However, Merrill's decision has effectively set a new, lower price for some of the most toxic credit assets that banks are holding on their balance sheets.

Mayo's estimate for the $8 billion third-quarter write-down on Citi's CDOs is based on the Merrill sale for 22 cents on the dollar, compared with the current marks at Citi of 53 cents.

The analyst said Citi "should still be able to absorb much of these charges and credit costs in general." However, Mayo, who has a hold rating on Citi shares, added the decision about raising new capital ‘could be closer than we previously thought.’”

Michael

Full post as published by Texas Lawyer Blog on July 29, 2008 (boomark / email).