NEW YORK - Singapore's state-owned investment fund is mulling a $5 billion investment in Merrill Lynch & Co. Inc., according to a report published yesterday, potentially providing the biggest U.S. brokerage with badly needed cash amid its billions of dollars in credit losses.
Merrill is said to be in advanced talks with Temasek Holdings about a capital injection, according to the report in the Wall Street Journal. Merrill would become the latest major U.S. financial services firm to turn overseas for cash to bail it out of huge losses related to the subprime-mortgage crisis.
The report drove Merrill shares up $1.04, or 2 percent, to $55.54 and helped spark a broad market rally. The Dow Jones industrials, the Standard & Poor's 500 index, and the Nasdaq each gained more than 1.5 percent.
A spokeswoman for Merrill Lynch declined to comment yesterday. Telephone calls to Temasek were not answered.
The mortgage problem stems from rising defaults by borrowers with risky, or subprime, credit histories.
Merrill took $7.9 billion of write-downs in the third quarter from bad bets on risky mortgage-backed securities. Analysts have predicted that Merrill's mortgage write-downs may double with another $8 billion or more in the fourth quarter. A write-down is a decrease on a company's books in the value of an asset, such as its loan portfolio.
Investment banks worldwide have written down an estimated $105 billion this year from exposure to mortgage-backed securities. There already has been a string of deals involving infusions from state-owned sovereign funds - mostly from Asia and the Middle East - announced in recent months.
Temasek's board has given preliminary approval for an investment in Merrill, according to the Journal report. Pricing, timing and regulatory issues remain to be negotiated, the newspaper said.
It also cautioned that a deal with Temasek may not happen, adding that Merrill may be in discussions with other government investment funds besides Temasek.
Government-sponsored investment vehicles in the Middle East and Asia have invested about $25 billion in Wall Street since the mortgage crisis began this summer. Some examples:
On Wednesday, Morgan Stanley announced a $5 billion investment from China's government-controlled investment vehicle.
In October, Bear Stearns Cos. agreed to a $1 billion investment, also from China.
Last month, Citigroup Inc. received $7.5 billion from the investment arm of the Abu Dhabi government.