Temasek Supports Merrill Despite Sub-Prime Losses

by Stewart Douglas

Story link: Temasek Supports Merrill Despite Sub-Prime Losses

Troubled investment bank Merrill Lynch has today found support from investment group Temasek Holdings, who today affirmed their belief in the strength of management in place at the company and its ability to recover from its poor performance over the last few months from the sub-prime sector collapse.

The holdings company, sponsored by the Singapore authorities, reiterated that its $4.4 billion investment in the firm was reflective of its confidence in the ability of management to regain the levels of performance enjoyed prior to the sub-prime collapse which saw the firm endure massive writedowns against asset values.

The group went further to say it expected Merrill Lynch to undergo further growth across its portfolios, justifying its substantial investment into the troubled US investment bank, as the first equity acquisition of its portfolio in a US based group.

The news comes just days after Merrill Lynch offloaded much of its commercial financing business to General Electric for $1.3 billion, which was thought to be a potentially substantial source of funding for further acquisitions in the near future, along with the funds provided by Temasek in return for its equity stake.

Temasek also retains options worth an extra $600 million of capital for Merrill, suggesting it may play a continued role in financing future investments as part owner of the private equity firm, with a view to generating a return and heightening profitability.

The equity deal with Temasek has been valued at $48 per equity share, despite the fact that shares were trading substantially higher earlier in the week.  It is also rumoured that Temasek may be prepared to continue its investment in the leading investment banks, with links to Morgan Stanley and UBS suggested.

It remains to be seen whether Temasek will look to increase its holdings, and whether Merrill Lynch will be able to justify the faith shown in its investment capabilities by the Singapore investment company.