Merrill Lynch Gets $6.6 Billion From Kuwait, Mizuho (Update2)

Back last year when a middle eastern country attempted to purchase an American port howls went up in opposition. So where are those folks now when foreign nations are purchasing large swaths of American banks?

By Edward Evans

Jan. 15 (Bloomberg) -- Merrill Lynch & Co. raised $6.6 billion by selling preferred shares to a group including the Kuwait Investment Authority and Japan's Mizuho Financial Group Inc. after being battered by losses from subprime mortgages.

The investors also include the Korea Investment Corp. and clients of U.S. money managers TPG-Axon Capital and T. Rowe Price Associates Inc., Merrill said in a statement today. The group won't have a say in how the firm is run, it said.

Merrill, the third-biggest U.S. brokerage, is raising money after $8.4 billion of writedowns on U.S. mortgage investments led to the biggest loss in its 93-year history in the third quarter. Today's investment comes a month after the New York- based firm raised $6.2 billion from Singapore's Temasek Holdings Pte and Davis Selected Advisors LP.

Investors ``are putting in capital but it's at a cost,'' said Peter Plaut, a senior credit analyst at New York-based Sanno Point Capital Management. ``Now it's up to the CEOs to be able to generate returns that exceed that cost of capital.''

Merrill fell 2.3 percent to $54.70 in New York pre-market trading today. The stock dropped 42 percent in the 12 months through yesterday, making it the third worst performer in the 12-member Amex Broker-Dealer Index.

Overseas Funding

Merrill will pay a 9 percent annual dividend on the securities until they automatically convert into shares in 2 3/4 years' time. The group will get fewer shares if Merrill's stock price climbs above $61.31 and more if it drops below $52.40.

The agreement with Kuwait will give Merrill ``additional opportunities to grow its presence there,'' Merrill Chief Executive Officer John Thain said in today's statement. ``Because of their extensive corporate client base in Japan and their deep network in China, the Pacific Rim and globally, we expect future collaboration with Mizuho to be very productive.''

Merrill spokeswoman Jessica Oppenheim in New York said Thain was unavailable to comment further.

Thain, who took over Dec. 1, joined Citigroup Inc., Morgan Stanley and UBS AG in tapping overseas investors to shore up capital. Before today, U.S. and European banks and securities firms had turned to Asian and Middle Eastern governments and investors for about $34 billion of fresh funds.

The world's biggest financial institutions have announced more than $100 billion in writedowns and loan losses sparked by the U.S. subprime mortgage slump, eroding their balance sheets and sending shares plunging.

Citigroup Loss

Citigroup, the biggest U.S. bank, said today it had a $9.83 billion loss in the fourth quarter and that it will raise $12.5 billion through selling securities to investors including Singapore and Kuwait.

Merrill probably will post a loss of $3.23 billion on Jan. 17, topping the record $2.24 billion shortfall reported in the third quarter, Stan O'Neal's last as CEO, analysts estimate.

The firm may write down $15 billion related to U.S. mortgage losses, almost twice its original forecast, the New York Times reported Jan. 11, citing unidentified people briefed on the plan.

Merrill is a passive, minority investor in Bloomberg LP, the parent of Bloomberg News.

Tokyo-based Mizuho becomes the first Japanese company in more than two decades to make a major investment in a Wall Street firm. Sumitomo Bank Ltd. a predecessor of Tokyo-based Sumitomo Mitsui Financial Group Inc., paid $500 million for a 12.5 percent stake in Goldman Sachs Group Inc. in 1986, later selling out.

`Restore Confidence'

``The financing could help Merrill restore some of the confidence it has lost,'' said Shinichi Tamura, a banking analyst at UBS Securities Japan Ltd. ``Mizuho would likely be a silent, passive investor and wouldn't make too much noise.''

Kuwait, the Middle East's fourth-biggest oil producer, formed the KIA in the 1980s to manage the nation's wealth.

The KIA is the biggest shareholder in Daimler AG with a 7 percent holding. Other assets include 1.7 percent of BP Plc and a stake in Industrial & Commercial Bank of China Ltd. it bought for $720 million in 2006, data compiled by Bloomberg show. KIA Managing Director Bader al-Saad was in a meeting and couldn't be reached for comment when Bloomberg called today.