Merrill raises $6.2 billion in slew of deals
Embattled bank sells $4.4B stake to Singapore investment fund, $1.2B stake to U.S. firm and announces sale of its financial arm to GE Capital; analysts still weary.
NEW YORK (CNNMoney.com) -- Merrill Lynch announced three deals Monday which will allow the beleaguered bank to raise much needed cash as its new CEO John Thain tries to save the company from the huge losses it incurred after the mortgage market meltdown.
The company said it will raise as much as $6.2 billion by selling stakes to two investment firms.
Singapore-based financial firm Temasek Holdings will buy $4.4 billion of common stock, and has the option to purchase an additional $600 million by March 28, 2008, Merrill said.
In the same announcement Merrill Lynch said that Davis Selected Advisors, a U.S based investment firm, will purchase $1.2 billion in Merrill common equity.
The firms will not have a controlling stake in the company, Merrill said and the deals are expected to close in mid-January.
GE buying Merrill Lynch finance unit
Also on Monday, Merrill said that GE Capital, the financial unit of General Electric (GE, Fortune 500), would buy the bulk of operations from the company's financial arm: Merrill Lynch Capital, but terms of that deal were not disclosed.
The investments come as welcome news to the firm, which suffered a record loss in the third quarter related to the subprime crisis.
John Thain, former Chief Executive of the New York Stock Exchange took over took the reins at Merrill after the company's CEO Stan O'Neal resigned in October.
Under O'Neal's leadership, Merrill wrote down $8 billion in the third quarter of 2007.
Newly appointed CEO John Thain could use the cash infusion as he steers the company through its stormy waters, but it appears that the bad news isn't over yet for Merrill.
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Douglas Sipkin, analyst for Wachovia Capital Markets, lowered his expectations for Merrill's fourth quarter, and expects further losses on writedowns from collateralized debt obligations.
Fitch Ratings said Monday it is still considering slashing its rating on Merrill Lynch & Co.'s credit even though the investment bank raised a chunk of cash by selling the stakes in itself to two firms. Fitch, which cut Merrill's credit ratings in October, said the bank still faces big losses on its mortgage holdings. Fitch still needs to review Merrill's appetite and management of risk before deciding on a rating, the agency said.
Merrill is expected to announce fourth quarter earnings in late January, but the company has not announced a date yet.
Other financial firms, including Morgan Stanley (MS, Fortune 500) and Bear Stearns (BSCPRG), also suffered steep losses in the fourth quarter, prompting the chief executives of those firms to forsake their annual bonuses.
Goldman Sachs (GS, Fortune 500) was the only ray of sunshine in the banking sector, reporting better-than-expected earnings. Its Chief Executive, Lloyd Blankfein, was credited with nimbly steering the company through the subprime mortgage crisis and will take home the biggest bonus in Wall Street history: $68 million in cash, options and restricted stock.