MERRILL LYNCH IN EMERGENCY WEEKEND TALKS WITH ASIAN AND MIDDLE EASTERN SOVEREIGN WEALTH FUNDS
December 31st, 2007“Why is this happening now? Here’s my theory: 31st December is a major day on the financial calendar. If you take a sample of bonds you’ll find that a disproportionate number of them are due for interest and/or redemption on 31st December. Redeeming bonds is very cash intensive, and cash is not freely available in the banking system right now.
So it seems likely that some frantic finance directors will be working long hours to find the cash that will enable them to avoid a default next week.”
—Paul Tustain, Director of BullionVault, in Train Wreck Imminent?
Via: Guardian:
John Thain, the new chief executive of Merrill Lynch, is this weekend in talks with Chinese and Middle Eastern sovereign wealth funds that could lead to the sale of another big stake in the US bank in a desperate bid to raise capital, according to sources in London and New York.
The discussions come just days after Thain was forced on Christmas Eve to sell $4.4bn (£2.2bn) of stock to Singapore investment firm Temasek as part of a wider plan to raise some $7.5bn.
Merrill Lynch has already taken an $8bn hit related to sub-prime investments, but Wall Street fears that the bank’s problems could go far deeper. ‘Thain is desperately seeking an additional infusion of foreign capital to bolster Merrill’s balance sheet,’ said one source. ‘It could be done by selling shares or other assets to raise cash.’
A US observer said: ‘The multi-billion cash injection from Temasek was not enough and Thain is taking calls from a host of other potential saviours, which are understood to include sovereign fund investors from the Gulf and China.’
Analysts believe that Thain needs funds urgently in a bid to thwart future liquidity problems. The bank has already announced plans to lay off 1,600 staff. ‘Thain is raising capital in anticipation of a large fourth quarter write-down,’ said Sanford Bernstein analyst Brad Hintz.
Sources close to Merrill Lynch say that Thain has cancelled New Year leave among his top lieutenants and that his team is working around the clock on various ‘scenarios’ that could be employed to save the bank if problems related to the credit crunch continue to worsen.
‘It is all hands to the pumps here,’ the source said, adding that the possibility of exploring a merger with another banking group had not been ruled out but was considered ‘an extreme scenario’. ‘Everything is on the table,’ he said.
Fears are mounting that Merrill Lynch will be forced to write down between $10bn and $15bn worth of assets related to CDOs – so called collateralised debt obligations – when it reports financial results next month. Stan O’Neal, the bank’s former chief executive, was forced to resign when Merrill revealed write-downs in November.
Research Credit: GP
