Merrill gets cash injection by Temasek

Merrill Lynch on Monday sold most of its middle-market commercial finance business to General Electric and confirmed a $6.2bn investment by Temasek Holdings of Singapore and Davis Selected Advisors as the Wall Street bank seeks to bolster its capital base.

The deal by GE to buy the bulk of the business of Chicago Merrill Lynch Capital raises about $1.3bn in capital for other parts of its business.

Merrill Lynch has been among the banks hardest hit by the US subprime mortgage meltdown and is expected to announce billions of dollars in further writedowns in the the fourth-quarter.

“This transaction reflects Merrill Lynch’s continued strategic focus on divesting non-core assets and optimising capital allocation, while also enabling the redeployment of approximately $1.3bn of capital into other parts of our business,” said John Thain, chief executive and chairman of Merrill.

Mr Thain joined the Wall Street bank from NYSE Euronext just three weeks ago.

Temasek, a Singaporean state-owned investment company, will invest $4.4bn in Merrill’s common stock and has the option to purchase an additional $600m of its stock by the end of March.

Merrill sold the stake to Temasek for $48 per share, almost $10 a share lower than the stock’s trading price on Monday.

Temasek was also mooted as a possible investor in UBS and Morgan Stanley, although the banks later confirmed cash injections from the Government of Singapore Investment Corporation and China Investment Corporation respectively.

Davis, an Arizona based fund management firm, will make a long-term investment of $1.2bn.

The deal with GE is expected to close in the first-quarter, and is expected to add more than $10bn in assets and $5bn in commitments to GE Capital Commercial Finance’s base of $260bn.

GE will acquire Merrill Lynch Capital’s corporate finance, equipment finance, franchise, energy and healthcare finance units

GE is thought to have outbid several other bidders for the Merrill business, which offers asset-based and other financing to middle-market and non-investment grade companies with revenue of between $50m and $750m.

In October, Merrill said it had written down the value of its mortgage-related holdings by $7.9bn in the third-quarter, prompting the departure of Stan O’Neal as chairman and chief executive.

Following the deterioration in the mortgage markets and writedowns reported by rivals such as Morgan Stanley, some analysts now estimate Merrill could face $10bn of writedowns in the fourth-quarter.

Merrill’s shares rose as much as 5 per cent on Monday but closed the session 3 per cent lower at $53.90 after it became clear Temasek had purchased its stake at a sharp discount.