Merrill Lynch may get capital infusion

updated 3:44 p.m. ET Dec. 21, 2007

NEW YORK - Singapore's state-owned investment fund is mulling a $5 billion investment in Merrill Lynch & Co., according to a report Friday, potentially providing the biggest U.S. brokerage with badly needed cash amid billions of dollars in credit losses.

The investment bank is said to be in advanced talks with Temasek Holdings about a capital injection, according to a report in The Wall Street Journal. It would become the latest major financial services firm to turn overseas for cash to bail it out of huge losses related to the subprime mortgage crisis.

A spokeswoman for Merrill Lynch declined to comment. Telephone calls to Temasek went unanswered.

Merrill has already taken $7.9 billion of writedowns from bad bets on risky mortgage-backed securities. Analysts have predicted that Merrill's mortgage writedowns may double with another $8 billion or more in the fourth quarter.

Jeff Harte, an analyst with Sandler O'Neill & Partners, estimated in a client note Friday the bank will record $10 billion in additional credit costs in the fourth quarter. His previous estimate was for fourth-quarter writedowns of $3.5 billion.

Analysts polled by Thomson Financial expect Merrill Lynch to lose money in the fourth quarter, and depending on the severity of the writedowns, the bank could post a loss for the year.Merrill's third-quarter writedowns led to a loss of $2.3 billion.

Global banks have written down an estimated $105 billion this year from exposure to mortgage-backed securities. And, there have already 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 already given preliminary approval for an investment into Merrill, according to the report, which cited unnamed people familiar with the situation. Pricing, timing and regulatory issues remain to be negotiated, the report said.

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