Tuesday, September 16, 2008

The Merrill Fire-Sale

As the dramatic collapse of US investment bank Lehman Brothers caused global stock markets to plunge, one piece of news overshadowed by Lehman Brothers is causing Singaporeans much more discomfort.

As Lehman Brothers filed for bankruptcy, it will be the fire-sale of Merrill Lynch that will worry Singaporeans. For those people for don’t know, the Singapore government investment firm Temasek Holdings is the single largest investor in Merrill Lynch with investments totaling about 8.3 billion dollars in Merrill Lynch.

What will happen to Temasek’s shares now that Bank of America (BoA) has bought over Merrill Lynch for 50 billion dollars? Your guess is as good as anyone’s! Temasek Holdings has said that it had not decided on what to do with its stake yet, but no matter what their decision is, it’s hard to see anything good for Temasek (and Singapore) out of this.

Temasek Holdings holds about 13 to 14 percent of Merrill which made it the biggest investor in the US investment bank; now its’ stake will be much smaller. Not only that, since this is a takeover by BoA, Temasek has even less say in how its’ money will be run.

The price of the sale also has me worried. As reported earlier, Temasek Holdings holds about 13 to 14 percent of Merrill which totaled about 8.3 billion dollars, but BoA only spent 50 billion dollars to buy over Merrill Lynch. Makes you wonder just how bad things are in Merrill.

8 comments:

Nighthound said...
This comment has been removed by the author.
Nighthound said...

Your figures are confusing because you're mixing up USD and SGD.

Temasek paid US$5.9mil (not 8.3mil as stated in your post) for the 14% stake in Merrill. Based on the US$50bn sale price to BoA, that is equivalent to about US$7m, so Temasek actually made a profit on their investment.

Xtrocious said...

Nighthound - that would be in Billions - 1 extra zero makes a whole world of difference :p

Yes, it would seem like Temasek came up smelling like roses...

However, the ML deal is via a share swop i.e. Temasek would get BOA shares in return - but in this market, how well will BOA share price hold up is a billion dollar question (no pun intended) :p

Nighthound said...

oh yeah you're right my bad. i meant US$5.9bn not mil. So on paper their profit is US$7bn, but now that BoA stock prices have dropped by 20+% think they'll just about break even, or even make a loss.

Anonymous said...

The question is: did Temasek make/lose any money?

For a more detailed discussion on this topic, see:
Singapore Kopitiam
http://forums.delphiforums.com/sunkopitiam/messages/

Ghost said...
This comment has been removed by the author.
Ghost said...

I think it's also impossible for Temasek to make money out of this. The US$29 share price is not the only thing in play here. The share swop is one thing but another is if BoA can take over Merrill's debt. Merrill's debt is about 40 billion. Can BoA do a takeover and clear Merrill's debt at the same time? I don't know.
Singapore papers have been saying that Temasek will make money out of this. I hope that is true but I want to know how.

Anonymous said...

I feel we should be more worried for Citi and UBS and Barclays.

Citi : US$ 15.75 (one of the largest creditors to Lehmans?)

UBS : US$ 15.55
Barc : GBP 308p

Whilst clearly we have now changed ships, it solely depends on the price of BOA and given that they get only 0.8595 for each ML share. I also think T is in a strategic dilema as they much preferred Citi in the first place. BOA is competitor.
The jury is still out there though our MSM wanted to paint a rosy picture and started jumping for joy. We can only hope the landing is on both feet cause we have the Citi and UBS egg that's stuck to our soles.