Merrill Takes $5.7 Billion Writedown, Temasek to Buy $3.4 Billion of Stock

Temasek has pumped in US$900million into Merrill again as committment of US$3.4bn worth of stock. The people there are sure optimistic about the seemingly gloomy future economy.

"Merrill said Monday Singapore's powerful state-owned investment fund Temasek was taking up 3.4 billion dollars of the offer -- but only after the investment bank compensates Temasek for losses on some five billion dollars it had already invested in Merrill this year.

The announcement came in the wake of Merrill's July 17 report that it had racked up a net loss of 4.89 billion dollars for the second quarter, another sign of the devastation of the US real estate crash on financial markets."

"The company said Monday it expects to record a pre-tax write-down in the third quarter of about 5.7 billion dollars, which includes a 4.4 billion loss on the CDOs being sold.

Merrill had already raised 15.3 billion from capital markets earlier this year, including share sales to the giant sovereign wealth fund Temasek.

Temasek's earlier investment though came with a requirement that if Merrill raised more capital within 12 months at a price lower that the 48 dollars share that the Singapore fund paid, it would be compensated for the difference.

Today's announcement meant that Merrill has to pay Temasek 2.5 billion -- which Temasek is turning around to put back into Merrill, along with another 900 million dollars."

Giving back Temasek Losses so as to gain more capital infusion.....although it sounds nice that Temasek is hedging some risk off by getting some cash back, they are investing in a company that has some serious cash problems. Then isn't getting some cash back gonna exacerbate the problem further (even though it will be pumped back)???

Merrill's a nice company, no doubt. But I aren't so sure in today's market. By pumping in more money, Temasek got itself even more entanged with Merrill. And as common sense, any capital raising efforts will almost guarantee more writedowns. Just wait and see.

On another note, Temasek's 30 year average returns is only 3%....far below industry average. Either the fund managers are useless (despite being paid so much; just by buying bonds will yield the same or more) or some of the money is flowing to somewhere you and I do not know....