Mortgage Woes Prompt Citigroup, Merrill Lynch To Tap Foreign Investors
- Jan 15, 2008
New York–Two of the nation’s biggest financial firms–Citigroup and Merrill Lynch–turned Tuesday to outside investments to help salvage their troubled balance sheets, The New York Times reports. On Tuesday, Merrill Lynch said it had sold a $6.6 billion investment to foreign investors including the Korean and Kuwaiti governments and Japanese investment bank Mizuho Corporate Bank. All will be passive investors. The governments and Mizuho will receive a 9 percent dividend; their class of stock will be convertible to common shares in less than three years.Also on Tuesday, Citigroup revealed it will receive a $12.5 billion investment–and the timing couldn’t be more perfect. The firm’s recently released fourth quarter results included a subprime mortgage-related $18.1 billion writedown–a much higher writedown than the $8 to $11 billion estimate Citigroup had offered in November.The writedown caused a $9.83 billion fourth quarter loss–the firm’s largest-ever quarterly deficit.Part of the new Citi investment involves $12.5 billion in preferred securities that are convertible into Citi’s stock, intended for sale to investors in private placements. The amount includes roughly $6.88 billion from the Government of Singapore Investment Corporation, run by the state of Singapore.Citi and Merrill aren’t alone in their decision to tap outside investors. In recent months, other Wall Street firms–including UBS and Morgan Stanley–have received foreign firm investments.