Reply #83: Merrill Lynch is Insolvent!

[Demeter]

http://www.earthside.com/earthside/2008/01/merrill-lynch-i.html

Earthside Comments: Understand what the words mean in the first news report here. "Giant write down" means "giant loss". "Sovereign wealth fund" means bought by a foreign government. What the story is telling us is that one of the United States' most well known and largest financial institutions is insolvent, broke ... and the the corporation is looking desperately to foreign governments for a bail out.

There is nothing good in this news.

Furthermore, the head of the Federal Reserve is promising significant interest rate cuts to try and stave off recession (but it is too late). The problem, however, is that it is fear and lack of confidence that loans will be repaid that is causing the 'liquidity crisis'.



Giant Write-Down Is Seen for Merrill | New York Times


Merrill Lynch is expected to suffer $15 billion in losses stemming from soured mortgage investments, almost double its original estimate, prompting the firm to raise additional capital from an outside investor.

Merrill, the nation’s largest brokerage firm, is expected to disclose the huge write-down when it reports earnings next week, according to people who have been briefed on its plans. The loss far exceeds the $12 billion hit many Wall Street analysts had forecast.

To shore up its deteriorating finances, Merrill is now in discussions with investors in the United States, Asia and the Middle East, including American private equity firms, to raise about $4 billion in the coming days, these people said.


... Merrill is hardly alone in seeking capital from overseas. United States financial institutions have raised more than $29 billion from foreign governments and their related investment entities, according to the market research firm Dealogic.

In recent months, the Government of Singapore Investment Corporation, Singapore’s lesser-known government fund, invested $9.7 billion in UBS; Citigroup sold a $7.5 billion stake to the Abu Dhabi Investment Authority; and the China Investment Corporation poured $5 billion into Morgan Stanley.

If a foreign government takes another big stake in Merrill, Congress might ratchet up its scrutiny of sovereign wealth funds, which have ballooned thanks to rising oil prices and booming emerging markets.

On Thursday, SenatorCharles E. Schumer, Democrat of New York, expressed concern about the amount of money American financial institutions are contemplating raising from sovereign wealth funds.

“Foreign investment, in general, strengthens our economy and creates jobs,” Senator Schumer said. “Because sovereign wealth funds, by definition, are potentially susceptible to noneconomic interests, the closer they come to exercising control and influence, the greater concerns we have.” ...