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Temasek Holdings, an arm of Singapore’s government, buys a large stake in the troubled US financial services company Merrill Lynch. It pays $48 per share, 13 percent less than the market value, and spends a total of $4.4bn. It also has an option to purchase a further $600m worth of shares by the end of March 2008, but agrees not to sell for a year. The asset manager Davis Selected Holdings also takes a smaller stake in Merrill Lynch. The shares purchased are newly issued, meaning the existing stockholders’ influence is diluted. However, the company needs the extra cash in order to cope with its losses on the subprime mortgage market. (Reuters 12/25/2007) However, Merrill Lynch will sell more new shares for a lower price a few months later. This activates a clause in the agreement with Temasek saying it is entitled to a discount, totaling around 50 percent on the price of the shares sold in December 2007. Temasek reinvests this discount in additional Merrill Lynch shares (see July 29, 2008). (Agency France-Presse 9/15/2008)
Temasek, an arm of the government of Singapore, increases its stake in troubled US financial services company Merrill Lynch. It had previously paid $5bn for new shares in the company (see December 25, 2007), but is now entitled to a discount on this totaling $2.5bn. It spends the discount returned to it by Merrill Lynch and an additional $900m on more shares in the company. Temasek pays around $24 per share, half of what it paid in December 2007. (Agency France-Presse 9/15/2008; Shiyin 9/15/2008)
Bank of America concludes an agreement to buy the troubled financial services company Merrill Lynch. Bank of America will pay Merrill Lynch’s shareholders in shares, offering stock worth $29 per one share in Merrill Lynch, which is 70 percent more than Merrill Lynch’s current market price. The sale follows a 68 percent decline in Merrill Lynch’s share price during the year amid writedowns and credit losses of $52bn. (Agency France-Presse 9/15/2008; Shiyin 9/15/2008)
Amid reports of a $15.4 billion loss, $1.2 million in office redecorations and earlier-than-usual million-dollar bonuses using TARP funds, John Thain resigns as CEO of troubled firm Merrill Lynch, recently purchased by Bank of America.
Investigating Bonuses - While Thain forgoes a 2008 bonus, New York Attorney General Andrew Cuomo is investigating bonuses paid to Merrill executives in late December, right before the deal closed. Merrill normally pays bonuses in January or February. Cuomo is investigating performance bonuses for Merrill’s CEO and other top executives, calling the bonuses an “oxymoron” during such an “abysmal year.” According to Merrill’s securities filings, Thain’s salary was $750,000 last year.
$837,000 for Redecoration - “Spending company money on a lavish redo at a time when Merrill’s finances were rocky sends the wrong message,” said Amy Borrus, deputy director at the Council of Institutional Investors in Washington. “Given the dire straits that so many financial institutions are in, redecorating the corner office should be way down on their to-do lists.” Someone familiar with Thain’s New York office redecoration claims that the CEO paid decorator Michael Smith $837,000 and his purchases included $87,000 for area rugs, $25,000 for a pedestal table and $68,000 for a 19th century credenza. Smith, a Santa Monica, California-based decorator, was recently commissioned by Michelle Obama to decorate the White House.
35,000 Job Losses - Thain, a former executive for Goldman Sachs Group Inc. and the New York Stock Exchange, joins about 35,000 employees that Bank of America CEO Kenneth Lewis plans to eliminate over the next few years from the combined firms’ total of over 260,000 employees.
Abysmal Performance - Lewis’s credibility was undercut after Merrill reported a record fourth-quarter deficit. Lewis considered backing out of the deal after learning the extent of Merrill’s losses in December 2008, but went ahead with the buyout at the insistence of US regulators who provided a new $138 billion aid package. “There was a certain surprise that the Merrill losses were as steep as they were,” says James Post, a professor of corporate governance and business ethics at Boston University School of Management. “On top of that, I think Lewis didn’t think Thain was doing as much as he could to control the expenses and minimize the losses.” Shares in Bank of America, down 53 percent so far in 2008, slide another 14 percent to $5.71 by the close of New York Stock Exchange composite trading. Thain bought 84,600 shares in Bank of America, at $5.71 each, the day before his ouster, a filing showed. (Fineman and Mildenberg 1/22/2009)
Recently bailed-out insurer AIG says that it is looking for a buyer for a fund management unit. This is part of a program to sell business units in order to repay the government (see September 18, 2008). The fund manager operates 15 funds that had more than $12.4 billion in assets under management as of September 30, 2008. Bank of America and Merrill Lynch are helping AIG to find a buyer. (Reuters 4/17/2009)
Troubled insurer AIG discloses that several US and European banks have been beneficiaries of the government’s bailout of the insurance company (see September 17-October 7, 2008). It announces that more than $90 billion was paid to various banks between the September bailout and the end of 2008. The banks include Goldman Sachs, Société Générale, Deutsche Bank, Barclays, Merrill Lynch, and Bank of America. Goldman Sachs, which received $12.9 billion between mid-September and the end of December—making it the largest beneficiary, will later say it did nothing wrong by accepting payments to close out trades before and after the insurer was rescued. (Reuters 4/17/2009)
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