Apology: We apologise for removing Tan Kin Lian’s piece on “Business ethics” posted earlier today. It will be published at a later date.
The following are excerpts from various news report on the latest happenings at US investment bank, Merrill Lynch. Singapore‘s state-linked investment firm Temasek Holdings is its largest shareholder.
Temasek agreed in December to invest up to $5 billion for a 10% stake in Merrill Lynch at $48 per share. Since then, more than 50% of the market value of Merrill Lynch has evaporated, to the present level of $25 a share, from more than $55 a share just before the new year.
Temasek was savvy enough to have negotiated protection against equity dilution when it concluded the previous deal: under the terms of the agreement, Merrill Lynch must compensate the Singaporean wealth fund if it raises new capital at a lower price in the future. Still, Temasek is still at risk of booking loss if the share price of Merrill Lynch dives further.
In yesterday’s statement, Merrill said it agreed to sell $30.6 billion of collateralized debt obligations — the mortgage- related bonds that have caused most of the firm’s losses — for $6.7 billion. The buyer is an affiliate of Lone Star Funds, a Dallas-based investment manager.
Merrill has lost almost 55 percent of market value this year. Only Lehman Brothers Holdings Inc. has fallen more on the 11- member Amex Securities Broker/Dealer Index, dropping 77 percent. Merrill fell 12 percent yesterday in New York Stock Exchange composite trading.
Singapore‘s state-linked investment firm Temasek Holdings, the largest shareholder in troubled US investment bank Merrill Lynch, confirmed on Tuesday it was increasing its stake.
Merrill Lynch announced Monday it was dumping billions of dollars of mortgage debt at a steep loss and raising 8.5 billion in new capital, including the 3.4 billion from Temasek.
The announcement came after Merrill on July 17 posted a net loss of 4.89 billion dollars for the second quarter.
Temasek had already committed in December to injecting 4.4 billion dollars, which it could increase by another 600 million dollars, into Merrill Lynch.
That initial investment came with a requirement that if Merrill raised more capital within 12 months at a price lower that the 48 dollars per share that the Singapore fund paid, it would be compensated for the difference.
The Singapore firm is putting that 2.5 billion back into Merrill, along with another 900 million dollars.
The world’s largest brokerage says the sales will trigger a third-quarter write-down of $5.7 billion, but plans to raise $8.5 billion in new capital through a public offering. Temasek Holdings, Singapore‘s sovereign wealth fund, will purchase $3.4 billion of common stock as part of the deal.
Following a session in which the Dow fell 277 points, Merrill Lynch said Monday it will take a $5.7 billion third-quarter write-down on bad debts, and will raise $8.5 billion by selling new stock, a $3.5 billion chunk of which will be bought by the Singaporean state investment firm Temasek. (See “Merrill Moves To Shore Up Books”)
The move shook confidence in the banking sector, rekindling fears that the credit crisis that has gripped the world for the past year has more to run. It followed an announcement earlier in the day from Australia‘s ANZ that it would write down more than $1 billion in credit-related losses.
Merrill Lynch, the investment banking giant that has lost more than $40bn (£20.1bn) on its mortgage investments since the start of the credit crisis, shocked Wall Street last night with plans to raise $8.5bn in new shares.
As part of a sweeping financial restructuring, the company is dumping most of its remaining holdings in risky mortgage derivatives and tapping the Singapore government for an emergency $3.4bn cash infusion.
The news of Merrill’s financial restructuring came after a day of mounting rumours it was facing new writedowns, just 11 days after it had posted its last results, containing a bigger-than-expected $9.4bn of writedowns. Its shares sunk 12 per cent to their lowest close in almost 10 years.
Temasek will plough that money, plus another $900 million, back into new Merrill stock, potentially increasing the state-run fund’s stake in one of the best-known U.S. banks to more than 10 percent.
The fund had been facing huge paper losses on its initial investment in Merrill at $48 per share as banking stocks slid this year amid writedowns on risky debt.
The rebate, announced less than two weeks after Merrill posted a $4.9 billion second-quarter loss, effectively reduces the cost of Temasek’s existing shares in the U.S. bank by more than half to $21 a share, according to Reuters calculations.
Neither Merrill nor Temasek disclosed the price at which the new Merrill shares would be offered.
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Merrill’s malaise
Financial Times
Witching hour ought to be moved forward from midnight to early evening in New York. These days, the few hours after the market’s official close all too often play host to announcements of profit warnings, bank failures and writedowns. Merrill Lynch added to the Wall Street horror show last night with news of yet another multibillion-dollar writedown and capital-raising effort.
Less than a fortnight ago, Merrill sprang another after-hours surprise on investors in the shape of worse-than-expected quarterly results on the back of, you guessed it, big writedowns. Rumours of more bad news had already pummelled Merrill’s stock throughout yesterday – it closed down almost 12 per cent to hit its lowest level this decade.
When the quarterly results were announced, the hopeful explanation was that John Thain, chief executive since December, was ripping out the kitchen sink with gusto. In saying Merrill will take a third quarter charge of $5.7bn and needs to raise another $8.5bn – about a third of the current market capitalisation – Mr Thain has confirmed that rotten plumbing still needs to come out. Tellingly, Merrill is selling collateralised debt obligations with a gross value of $30.6bn at 22 cents on the dollar. What’s more, Merrill is providing financing for the buyer, Lone Star Funds, for three-quarters of the purchase price – with the funding secured solely aginst the heavily discounted assets that the fund is buying. In effect, the money Lone Star is putting up itself to take the portfolio off Merrill’s books equates to just over 5 cents on the dollar of the gross value.
Mr Thain continues his job of scrubbing Merrill’s toxic balance sheet. He has even managed to persuade Temasek Holdings to come in again on the latest capital-raising, albeit at heavy cost. The problem is, like most horror franchises, the sequels to Merrill’s original chiller appear to be never ending.
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36) aygee on July 30th, 2008 10.53 am
“How many of us truly know what ML business is like throughout the world?”
So ? So ? Big deal. Well, I thought the big boys of high finance and ML knew their business very well in the first place. So why are they getting into this sh*t with MASSIVE write down and some needing bail-outs in the billions.
Just because you are someone who knows much about finance (in theory at least or even in practice) does not mean that you will know for sure the exact timing how the financial table will turn in reality. No one and absolutely no one knows for sure the timing of their recovery, if they ever recover – not even the Feb chairman or any finance minister in the world.
If it is also your own money which is at risk, then I will certainly salute you together with your explanation on good faith and good intentions which are really empty otherwise.
“47) aygee on July 30th, 2008 2.47 pm
The investment was also hedged against any devaluation of Singapore’s shares, if ML went out to look for more money.”
Effective hedge ? If the net worth of a company drops, then the real worth (value) of the shares (or per share) will correspondingly drop. What kind of hedge is this if you need whatever further money that some other people may be willing to offer if it is required to save your company.
Anyone here to enlighten me ?
If only the critics understood the terms of the deal better. The latest Merrill Lynch cash call was actually a sweet deal for Temasek. I believed Temask had learnt its lesson well with Barclays.
Do read this article:
http://online.wsj.com/article/SB121735266454993851.html?mod=googlenews_wsj
Seems like nobody up there is prepared to listen to the netizens’ concern. The spending goes on. How I wished that more be done for the poor and aging poor first.
aygee,
Do you play US stocks? Why not open an account with interactivebrokers and buy let’s say 10 lots of your savings on ML and say keep it for just 10 years. Let’s not pursue the 30 years time frame which the oldman promised but cant live to see the returns. You have so much faith and and good intention of Temaesk why not do the walk? Join them and buy some ML’s stock now trading at USD$25, lelong price you know. Sure it is a good time to buy rite? You have so much faith in our less than transparent government and poor management of funds and no actual information on the returns…how the heck you can say things so simply. I am no sheep and cant be brainwash by pap anymore. One last thing, GIC and Temasek ‘s investment returns how big the portion is derive from tax payer’s contributions and land sales and other taxes and even CPF as compared to actual profit returns from good investments. Do you care to share? A good company worth investing is one that is transparent enough. Like Berkshire Holdings from Warren Buffet and which GIC and Temasek can drool forever to become one.
I can only pray that HOJINX don make more costly mistakes. Bear in mind these are Singapore ‘s People’s hard earned money not some PEANUTS mentioned by the woody ‘s wife.
FG
can’t wait for ML to go bankrupt soon and see tumasek bit the dust. let see how singaporean can still ‘bo chup’ about it and believe for more good years.
Hello,
The latest cash call by ML is not exactly a bad thing. It is actually a sweet deal for Temasek if we look closely at the terms of the deal. The new deal essentially wipes out the paper losses suffered since Temasek’s first investment. Do read this article by WSJ.
http://online.wsj.com/article/SB121735266454993851.html?mod=googlenews_wsj
Hi Folks;
me comes in for a peek into TOC and can’t resist to put some words here.
Supposing someone or some people ‘are made’ to be answerable and accountable for all these investments in the Frailing Banks now; what kind of responsibilities do we expect from them?
If I am Lee Kuan Yew or even Lee Hsien Loong, the Prime Minister, I will shoulder every responsibility given that the Citizens are told to wait for thirty years for results, positive or otherwise. Meanwhile, the Top People in Temasek and GIC are collecting their fat pays and remunerations without fails. In thirty years? Give the Two Lees the best Foods and the Best Cares and even the rumoured blood changes anytime they want. At thirty years later, the Surviving Citizens can only go to their tombs to ask for accountabilities. Punish Lee Hsien Loong if thing goes wrong thirty years from now if he is still alive then? So What? Put a near 90 year old man in jail? See the Picture?
Almost everyone is right in everything said here and Dr Syed Alwi made a most relevant and useful call persistently for the Leadership to use a portion of the money to help the people who are facing problems in their livings. Here I must say I am very impressed with Dr Syd Alwi for his practicality and wisdom.
By now, Singaporeans should be awared of the Schemes of Events in our society, there are many relevant calls for responsibilities in this and that. HOWEVER, we are also painfully awared that the Schemers are able to come up with plenty of excuses and thereby evade all accountabilities ‘beautifully’ and naturally. We complain, we whine, we grumble only to hurt ourselves at the end of it all, maybe by doing so, our frustrations are relieved despite the helplessness. I sincerely believe, all of us hope that our Leaders will recover/discover their consciences and see the importance of helping their citizens as priority.
A period of thirty years is too long for me personally, I fear it maybe too long for many others and even our country. If fate comes as planned, even begged, all of us need not worry. BUT, if I understand fate correctly, it is beyond human manipulations, let just hope that we have SENSIBLE LEADERS.
patriot.
aygee,
the oldman is obviously influencing decision of Temasek, GIC and the government. Look the same oldman talk about investment of his instrument and talk political scene in Singapore, and do we not know old man still in control overall. You bet. How can a government run properly when money collected channel to Temask and GIC with oldman behind everything and pretending not ? The oldman is obviously the mastermind. So when one speak of government, can one forget about GIC and temasek ? You forget the head of all these ?
Did you notice not when investing in communicating oversea using Temask, GIC, the oldman is the one doing the talking behind deal make not his inept son and his wife ? And this involve political issue not just a matter of commercial interest. One reason is that other countries stamp on us is because it is both a commerical and political been a government, now you see the point of why all these are linked together.
A government so afraid of LKY than they even can do President Ong when the latter ask for explanation on accounting and audit ? What is this ? Do we still want to live in a make-believe world after so much loss ? How much loss before action is taken ? How much of loss is enough ?
aygee,
suggest you read The Singapore Miracle to uncover the real truth behind the public information that claimed to be released by GIC, Temasek. Information that are claimed to be public are just for wayang and when the someone requested the public information on GIC, and Temasek, it is next impossible to get.
The Singapore Miracle is a must-read book and wake-up call to those gullible, naive who still believe in Fallacy of Singapore. I don’t have problem with government until these few years when the JOker Lee takes over, the ministers are spawning rubblish that hard for layman to digest and find ways to dig money from citizen. Blunder after blunder, and still Singapore remains the same way it runs. Read the book and you will find that whatever Singapore’s issue in the past, present and in the future are discussed. These gahmen are making this just too obvious to be ignored.
It is quite sad when I speak to many Singaporeans, singaporeans can only save this is the way the world and government are. If that is the case, it is a great sin to bring the baby into this world to suffer in this pragmatic world that we choose to believe.
COMPLAING COMPLAING, WHY YOU ALL SO LIKE DAT WAN siah?
IS THERE A NEED FOR TRANSPARENCY for ‘THE’ funds?
WHY ? GIVE ME 2 GOOD REASONS AT LEAST.
SINCE Decades ago that it was created, does the PEOPLE know about the investment performance of ‘THE’ funds?
How many Elections has passed since then?
Have the PEOPLE spoken?
Had the PEOPLE spoken?
By this, I can say that the MAJORITY do not demand TRANSPARENCY of ‘THE’ funds, how they use money, which I am not sure come from who or where.
Is this kind of citizen the ideal for other country leaders? I have no idea.
So, all I have to say is , WHY COMPRAING now when all was said and done?
So damm UNIQUE until unique cannot anymore…
SAD. From now till forever more. Self preser….ation. Ya, really ’1st wer’.
$900 million…….Just think about it. With that amount of money, we could have discovered an alternative energy source, gone to the moon, discovered a cure for cancer…..Instead of which, we buy a stake in a failing investment bank….
Sorry pal, it’s $900 million plus $4.4 billion.
Number 8th bank in U.S., ‘First Priority Bank, Bradenton, FL’, closed on Aug 1.
More banks to close? I think yes.
“More banks to close? I think yes.”
Worry not. The whole Singapore is a bank. Just milk the citizen here and there and billions will appear for another investment of 30 years. Will Singapore be the next Atlantis ?
In 1999, Singapore’s first elected President, Ong Teng Cheong, asked the Ministry of Finance what the state of our national treasury was. He never got an answer and died shortly after that.
I’m no financial expert OK, but I just checked Yahoo Finance and after today’s terrible bloodbath in the stock market, MER has dropped to $18. The market cap is now $27.57B, so if Temasek owns 10% of Merrill Lynch – does that mean that its stake is now worth $2.757B? So let’s see, if Temasek sank $5.3B into Merrill, some of that money has gone missing.
All this is supposed to reflect Bank of America’s own problems – remember that BAC made an offer for MER at $29, but it was supposed to be an all-stock deal. Whatever. MER’s stock price seems to reflect a much lower value for the company now. And who the heck knows anything anymore – what if the deal doesn’t go ahead and Merrill Lynch collapses like Lehman?