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April 11, 2008

Merrill to draw on capital for investment abroad

by Dave Nixon

Story link: Merrill to draw on capital for investment abroad

Merrill Lynch on Tuesday said it would use its augmented capital to create investments outside the US and to take benefit of the credit turmoil on home soil.

The US bank was one of the hardest hit by the US subprime loan disaster and has raised $12.8bn in new capital from a wide range of international investors, including a combined $6.6bn this year from the Kuwait Investment Authority, Mizuho Bank and the Korea Investment Corporation.

Excluding its US wealth management business, Merrill Lynch derives 60 per cent of its revenues outside the US and its policy of overseas development had not changed as a result of its latest troubles, John Thain, Merrill president, said in Tokyo.

“We continue to believe that there are great growth opportunities outside the US,” he said, adding that Merrill Lynch would “continue to invest in those growth opportunities.”

In Japan, Merrill saw opportunities to enlarge a series of businesses, including investment banking and wealth management, in which it has a joint undertaking with Mitsubishi UFJ Financial Group.

“Besides here in Japan, our business is growing in faster growing parts of the world, places such as Brazil, India, China, Russia the Middle East those are all great growth opportunities for us,” he said.

Mr Thain said that, despite the hits Merrill suffered amid the subprime mortgage crisis in the US, the investment bank was ready to go on the offensive in its home market as well.

“The credit problems in the United States I think actually present good opportunities for us, so I think we are well positioned as we go forward to 2008,” Mr Thain said.

“We have been shrinking our balance sheet, so that shrinkage will continue but we also will take advantage of opportunities in the marketplace and we will also continue to provide capital to our clients who need it,” he said.

“We still have plenty of capital and plenty of desire to make investments or providing financing to our customers,” Mr Thain said.

He suggested that the bank was expected to cut costs but declined to confirm whether there would be any job cuts.

“We have not announced any lay-offs.

“However, in this difficult environment to focus on expenses is also a logical thing for us to be doing,” he said.

Altogether, Merrill to date has raised more than $4bn more capital than it lost as a result of the subprime crisis.


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