Merrill Lynch & Co. will issue $6.6 billion in preferred stock to a group that includes three longtime investors as seeks to firm up its capital standing in the wake of massive mortgage-related writedowns.
New York-based Merrill Lynch will sell preferred stock primarily to Korean Investment Corp., Kuwait Investment Authority and Mizuho Financial Group Inc. for $52.40 a share, equal to the three-day average closing price Friday. It will pay a 9% dividend.
"One of my main priorities over the last several weeks has been to ensure Merrill Lynch's balance sheet is strong, and these transactions make certain that Merrill Lynch is well-capitalized," said newly minted Chairman and Chief Executive John A. Thain.
Singapore state-run Temasek Holdings, a sovereign wealth fund, injected $4.4 billion in December, with another possible $600 million coming in March. Add to that Tuesday's announcement, plus capital from Davis Selected Advisors LP, and that brings the total to as much as $12.8 billion for Merrill in under two months.
Other investors in the latest round of preferred stock include TPG-Axon Capital, the New Jersey Division of Investment, the Olayan Group and T. Rowe Price Group Inc. on behalf of various clients.
Kuwait Investment Authority is that country's sovereign wealth fund, while Mizuho is a Japanese bank.
Mizuho's role in the recapitalization of Merrill isn't the first time a Japanese bank has helped to beef up the finances of an undercapitalized U.S. investment bank but does mark the biggest demonstration of Japanese banks' return to international financial markets in more than two decades.
In 1986, Sumitomo Bank Ltd., one of the predecessors of Sumitomo Mitsui Financial Group Inc., bought a stake in Goldman Sachs Group Inc. that gave the firm — then a private partnership fighting to compete with better-capitalized rivals — a much-needed cash injection of $500 million.
The Japanese bank went on to make $1.9 billion on the investment. When Sumitomo found itself short of cash in 2003, Goldman pumped $1.3 billion into the bank, solidifying the relationship between the two institutions, which remain close and often work on investment projects together in Tokyo.
The Merrill investments come as the company has suffered dearly amid the ongoing credit crunch. It had mortgage-related writedowns of $8.4 billion in the third quarter, and a similar-sized writedown is projected for the fourth quarter. That period's results will be released Thursday.
A series of foreign cash injections have been made in recent months in U.S. financial institutions struggling to shake off the impact of soured subprime loans, mortgages extended to U.S. homeowners with shaky credit histories.
Shares closed at $55.97 on Monday, and there was no premarket trading Tuesday.
