Interest Rate Roundup

Monday, July 28, 2008

Merrill Lynch dials for more dollars

It used to be that you grabbed your wallet and ran as soon as you heard the famous words "I'm from the government and I'm here to help." Now you have to do that as soon as you hear someone in corporate America say: "No, we don't need to raise any more capital." Just about every time a bank, broker, or insurance company has said that in the past year, they have reneged on their promise. And any investor foolish enough to believe it has been hosed when the company has later come out and said: "Oops."

This evening, it's Merrill Lynch that is out dialing for dollars. Specifically, the company is taking a $5.7 billion writedown and raising another $8.5 billion in capital. Some $3.4 billion of the shares being sold are going to go to Temasek Holdings, the Singapore sovereign wealth fund. Merrill earlier this year raised $6.6 billion in capital, a sizable chunk of which came from Temasek.

Here's something else that really jumps out at you:

"On July 28, 2008, Merrill Lynch agreed to sell $30.6 billion gross notional amount of U.S. super senior ABS CDOs to an affiliate of Lone Star Funds for a purchase price of $6.7 billion. At the end of the second quarter of 2008, these CDOs were carried at $11.1 billion, and in connection with this sale Merrill Lynch will record a write-down of $4.4 billion pre-tax in the third quarter of 2008."

Is Merrill saying that a portfolio of securities with a face value of $30.6 billion was sold for $6.7 billion? Roughly 22 cents on the dollar? What does that "mark" now mean to the value of similar assets that other banks or brokers might be holding?


  • For Merrill to sell CDO's valued at $30B for $6B, says Merrill needs money badly and fast.

    By Anonymous Julia, at July 29, 2008 at 1:54 AM  

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