Merrill May Turn to Singapore Fund for Cash Help

NEW YORK -- Singapore's state-owned investment fund is considering a $5 billion investment in Merrill Lynch, according to a report Friday, potentially providing the nation's biggest brokerage firm with much-needed cash as it deals with billions of dollars in credit losses.

Merrill Lynch was in advanced talks with Temasek Holdings about a capital infusion to help cushion the investment bank from credit-market related losses, the Wall Street Journal reported. Merrill Lynch would become the latest major financial services firm to turn to an overseas firm for cash to bail it out of huge losses related to the subprime mortgage crisis.

Merrill Lynch shares closed up $1.04, or 1.9 percent, at $55.54 on hope the cash infusion would help cushion any further losses linked to the credit turmoil. Merrill has already taken $7.9 billion in write-downs from bad bets on risky mortgage-backed securities.

A spokeswoman for Merrill Lynch declined to comment. Telephone calls to Temasek were not answered.

Global banks have written down an estimated $105 billion this year from exposure to mortgage-backed securities, and a string of deals involving infusions from state-owned sovereign funds, mostly from Asia and the Middle East, has been announced in recent months.

Temasek's board has given preliminary approval for an investment into Merrill, according to the report, which cited unnamed people familiar with the situation. Pricing, timing and regulatory issues remain to be negotiated, the report said.

A deal with Temasek may not happen yet, the report said, adding that Merrill may be in discussions with other government investment funds besides Temasek.

Analysts have predicted that Merrill's mortgage write-downs may double with another $8 billion or more in the fourth quarter. Merrill's third-quarter write-downs led to a loss of $2.3 billion.

Government-sponsored investment vehicles in the Middle East and Asia have invested about $25 billion in Wall Street since the mortgage crisis began this summer. Morgan Stanley on Wednesday announced a $5 billion investment from China's government-controlled investment vehicle to help replenish its capital. In October, Bear Stearns agreed to a $1 billion investment from China's government-controlled Citic Securities. Citigroup received a $7.5 billion capital infusion from the investment agency of the Abu Dhabi government last month. UBS last week announced that Government of Singapore Investment, the city-state's other state investment fund, is investing $9.75 billion for a 9 percent stake in the Swiss banking company.

Merrill Lynch shares have fallen about 20 percent since Oct. 24, when it announced write-downs on mortgage-backed debt and corporate loans. The company then ousted chief executive E. Stanley O'Neal and replaced him with former New York Stock Exchange head John A. Thain.

Temasek has a track record of making large investments in financial institutions, and has major holdings in Britain's Standard Chartered and South Korea's Hana Financial Group. The fund was set up in 1974 to manage Singapore's assets, and now controls a portfolio of more than $100 billion worth of investments.