Temasek bought additional $819m Merrill shares in Feb

By Grace Ng, ST

Temasek Holdings has exercised its option to buy an additional US$600 million (S$819 million) worth of shares in troubled American bank Merrill Lynch.

A filing by Merrill with the United States Securities and Exchange Commission (SEC) on Feb 25 stated that Temasek had bought an additional 12.5 million shares at US$48 apiece. This raised its stake in the bank to US$5 billion.

The Singapore investment company had bought US$4.4 billion worth of Merrill stock at US$48 a share late last year, when the bank sought to raise capital from Temasek and US money manager Davis Selected Advisers.

The agreement signed in December last year also gave Temasek an option to buy a further US$600 million worth of shares by March 28, as long as its holdings would not exceed 10 per cent of Merrill’s total outstanding common shares.

Temasek said at that time that its investment reflected its belief in the ’strong growth potential’ of Merrill.

The US$48 share price then was a 13.6 per cent discount to Merrill’s trading price of US$55.54 on Dec 21.

On Feb 24, a day before Merrill’s SEC filing about the new Temasek purchase, the shares closed at US$53.05.

But the shares have since slumped, closing at US$42.88 on Monday.

This is 10.7 per cent below Temasek’s US$48 purchase price and represents a paper loss of about US$534 million for its entire investment to date in Merrill.

Analysts said Temasek’s move to raise its stake in Merrill reflected its stance as a long-term investor and its confidence that the credit crunch, which has brought major banks to their knees, will eventually blow over.

In January, Merrill raised more capital from Middle East and Japanese investors. But it does not plan to raise any more, according to chief executive John Thain.

Merrill has written down US$24 billion worth of securities related to the risky US sub-prime mortgage market.

The write-downs dragged Merrill into the red to the tune of over US$8 billion last year.

Analysts expect Merrill to suffer further write-downs of US$3 billion to US$5 billion when it reports its first-quarter earnings tomorrow.