Merrill May Get $5 Billion from Singapore Fund

With losses mounting, Merrill Lynch, the nation's largest brokerage firm, is turning to Asia for financial help.

Merrill Lynch
Merrill Lynch

In one proposed deal, Merrill could sell a $5 billion chunk to the government of Singapore, CNBC has learned. The deal, however, isn't finalized, and Merrill may seek money from other players, a source inside the company said.

Merrill's new Chief Executive John Thain has been making the rounds to global financial players seeking the much-needed capital to secure its balance sheet.

As reported by CNBC On-Air Editor Charles Gasparino, Merrill, which has more brokers than any other Wall Street firm, may need to write down losses of more than $7 billion. That's on top of the $8.4 billion in write downs that the firm has already announced.

The combined $15 billion writedown would be the largest on Wall Street so far, and sources inside the firm say Merrill may preannounce its losses to get the news out of the way. The firm is scheduled to release fourth-quarter earnings in mid-January.

News that Merrill may be seeking foreign capital and the growing size of the writedown of losses was first reported yesterday by Gasparino on "Power Lunch" and "Kudlow & Co."

A Merrill Lynch spokesman had no comment.

Merrill's losses stem from holding positions in risky mortgage-related bonds. Merrill was one of the biggest underwriters of these securities in recent years. Even when sophisticated investors balked at purchasing these bonds as the housing market collapsed, Merrill chose to continue earning underwriting fees.

Instead of selling the securities, the firm warehoused the bonds, known as collaterialized debt obligations, or CDOs, on its books in hopes that the market would improve. When it didn't, Merrill began to write down huge losses. The writedowns led to ouster of Stan O'Neal as CEO, who was recently replaced by Thain.

Merrill would not be the first Wall Street firm to receive a cash infusion from Asia during this current credit crunch.

Earlier this week, China Investment Corp. agreed to pump $5 billion into Morgan Stanley as the U.S. investment bank posted a fourth-quarter loss fueled by $9.4 billion of losses in subprime mortgages and other assets.

Citigroup agreed last month to sell a 4.9 percent stake to Abu Dhabi for $7.5 billion, while UBS accepted a $9.75 billion investment from the Government of Singapore Investment Corp.