Merrill may get $5 billion investment from Singapore's Temasek

22 December 2007

Hit by the biggest loss in its 93-year history, Merrill Lynch is looking for a cash infusion of as much as $5 billion from Singapore's state-owned Temasek Holdings, The Wall Street Journal has reported. Temasek's board has already given preliminary approval for the investment, the report said.

Merrill now joins Citigroup, Morgan Stanley and UBS in tapping a sovereign wealth fund to shore up capital. Government funds are making use of the mortgage crisis to buy stakes in these banks on the cheap.

Merrill, the world's biggest brokerage, announced $8.4 billion of writedowns in mortgage-related investments and corporate loans on 24 October. It ousted CEO Stan O'Neal in October, but may still report an additional $8.6 billion writedown for the fourth quarter, say analysts.

Asian governments - in the Middle East, Far East and south-east Asia - have agreed to invest about $25 billion in Wall Street firms since banks began to report sub-prime losses. Merrill's shares have slumped 42 per cent this year, cutting its market value to $46.7 billion. The firm reported a $2.2 billion loss for the third quarter.

Set up in 1974 to run state assets, Temasek now manages a portfolio of more than $100 billion that includes controlling stakes in seven of Singapore's 10 biggest publicly traded companies. It holds 17 per cent of Standard Chartered and 28 per cent of DBS, Singapore's largest bank.

Temasek is owned by Singapore's finance ministry, and has achieved an 18 per cent average annual return since its inception. It raised more than $800 million in the past month, selling part of its stake in China Construction Bank and Bank of China, the nation's second- and third-largest lenders.