"They can write big checks and these banks appreciate that.'' -David Cohen on Temasek.
.First the GIC pumped cash into UBS, now Temasek is pumping money into Merill. In Singapore the govt has long believed that giving the poor enough assistance for basic living creates a dangerous moral hazard and incentivise their subprime economic performance. Merrill Lynch is cash-strapped due to bad investments in mortgage backed securities. Helping Merrill to recapitalise will get them out of the mess. I guess when there is a chance to make some good money Temasek is able to overcome the hurdle of moral hazard.
Merrill May Get $5 Billion Investment From Temasek, WSJ Says
By Kelly Riddell and Jean Chua
Dec. 21 (Bloomberg) -- Merrill Lynch & Co., reeling from the biggest loss in its 93-year history, may receive a cash infusion of as much as $5 billion from Singapore's state-owned Temasek Holdings Pte., the Wall Street Journal reported.
Temasek's board has given preliminary approval for the investment, the report said, citing people it didn't identify. Merrill Chief Executive John Thain, who took over Dec. 1, would join Citigroup Inc., Morgan Stanley and UBS AG in tapping a sovereign wealth fund to shore up capital.
Government funds ``are making use of the crisis to buy some of these banks on the cheap,'' said Nicholas Yeo, who helps manage more than $40 billion in Asian equities at Aberdeen Asset Management in Hong Kong. ``Whether they're buying cheaply enough is hard to say.''
Merrill on Oct. 24 announced $8.4 billion of writedowns on mortgage-related investments and corporate loans. The firm, which ousted Stan O'Neal as CEO in October, may report an additional $8.6 billion writedown for the fourth quarter, according to David Trone, an analyst at Fox-Pitt Kelton Cochrane Caronia Waller.
Governments in the Middle East and Asia have agreed to invest about $25 billion in Wall Street firms since banks began to disclose subprime losses. Merrill's shares slumped 42 percent in New York this year, cutting its market value to $46.7 billion. The firm reported a $2.2 billion loss for the third quarter.
Rob Stewart, a Hong Kong-based spokesman for Merrill, declined to comment. Temasek, the biggest shareholder of Standard Chartered Plc and DBS Group Holdings Ltd., also declined to comment.
Citi, Morgan Stanley
Citigroup Inc., the biggest U.S. bank by assets, said Nov. 27 that Abu Dhabi would invest $7.5 billion in the New York-based company. State-controlled China Investment Corp. is buying an almost 10 percent stake in Morgan Stanley for $5 billion after the second-biggest U.S. securities firm reported a loss of $9.4 billion from mortgage-related holdings on Dec. 19.
UBS, the biggest Swiss bank, made an agreement this month to replenish its capital with 13 billion Swiss francs ($11.2 billion) from the Government of Singapore Investment Corp. and an unidentified Middle Eastern investor.
Temasek is in advanced talks with Merrill about the investment, although pricing, timing and regulatory issues need to be negotiated, the Wall Street Journal reported. The fund manages more than $100 billion of assets, including controlling stakes in seven of Singapore's 10 biggest companies by market value.
They ``may feel there are bargains out there,'' said David Cohen, an economist at Action Economics in Singapore. ``They can write big checks and these banks appreciate that.''
To contact the reporter on this story: Kelly Riddell in Washington at Kriddell1@bloomberg.net .