Merrill Lynch, due to report its end of year results next Thursday, is going to suffer more than analysts have been predicting, according to a report in Friday’s New York Times:
Merrill Lynch is expected to suffer $15 billion in losses stemming from soured mortgage investments, almost double its original estimate, prompting the firm to raise additional capital from an outside investor.
Until now, even the most bearish estimates on ML’s Q4 writedown were around $10bn. Merrill Lynch CEO John Thain was always prepared for a rough ride, though, telling analysts in December that Q4 would be “very bad”. In the words of US senator Everett Dirkson, “a billion here, a billion there, and pretty soon, you’re talking real money.”
So goes the writedown game. Most likely that the extra $3bn writedown will have been born on the back of further trouble in the CDO market. And quite possibly, it’s the first sign of the pain we were expecting banks to feel on the back of the ACA downgrade… (in which case, expect something similar for Bear).
But what everyone is really interested in, is where Merrill is going to raise new capital from. That was the subject of Thursdays front page, in the WSJ.
According to that, ML was likely to get a new capital infusion from Asia – possibly from Singapore, which already owns a $4.4bn stake via Temasek holdings. Today’s NYT article sheds no more light on the likely new partner, SWF-wise:
Merrill is now in discussions with investors in the United States, Asia and the Middle East, including American private equity firms, to raise about $4 billion in the coming days, these people said.
So not Europe then – fancy that. Interesting though, that the Journal mentions “American private equity firms” – what a way to keep it stateside.