Leading global banks including Citigroup and UBS on Tuesday faced renewed pressure to write down or sell billions of dollars in toxic assets following Merrill Lynch’s disposal of $30bn in mortgage-related securities at a cut price. Merrill’s move to sell CDOs for $6.7bn, or 22 cents on the dollar – announced Monday - raised hopes that other banks could strike similar deals. But the low price paid for Merrill’s CDOs, including by Lone Star Funds, a distressed debt investor, fuelled fears of another spiral of huge writedowns followed by highly dilutive capital raisings. Merrill on Tuesday raised $8.5bn – to offset $5.7bn of writedowns caused by the CDO sales and other losses – by selling shares at $22.50, a 7.5% discount to Monday’s close. Lex says Merrill’s deal is “cathartic”, having cut its exposure to troubled bond insurers. But repeated assurances on capitalisation will stick in the minds of long-suffering investors.
