Merrill Lynch is in "preliminary" talks with Singapore's Temasek that could result in the US bank becoming the latest Wall Street titan to receive a significant cash injection from a sovereign wealth fund.
A person familiar with the matter yesterday said that the two sides had held discussions in New York in recent weeks about a potential multibillion dollar investment by the Singapore state investment agency.
Citigroup, UBS and Morgan Stanley have each sold large amounts of equity to sovereign wealth funds in the Middle East and Asia in recent weeks to bolster balance sheets that have been battered by losses relating to US subprime mortgages.
"Merrill and Temasek have been talking for a while about this although there are no indications that a deal is imminent," said the person.
In October, Merrill announced $8.4 billion worth of writedowns on mortgage-related investments and corporate loans, and the departure of Stan O'Neal, its long-serving chief executive.
Some analysts predict that Merrill will announce an additional $8 billion writedown when it unveils its fourth-quarter results in mid-January.
The US bank's stock price has nearly halved this year, cutting its market capitalisation to around $47 billion. Dealmakers believe that Merrill would be comfortable with Temasek taking a stake of around 10 per cent, should a deal materialise.
Merrill Lynch and Temasek declined to comment yesterday.
Morgan Stanley this week announced that it is to receive a $5 billion capital injection from China Investment Corporation, having disclosed a total writedown in the fourth quarter of $9.4 billion following a disastrous subprime bet.
Last week UBS took nearly $10 billion from the Government of Singapore Investment, a sister sovereign wealth fund of Temasek, while Citigroup last month received $7.5 billion from the Abu Dhabi Investment Authority.
The deals have underlined the growing importance of sovereign wealth funds in the Middle East and Asia, and their increasingly bold moves to take advantage of the need for capital among western institutions.
The three deals have yet to be endorsed or scrutinised by shareholders of the investment banks.
UBS is facing a shareholder revolt over its planned re-capitalisation deal with GIC and a mystery investor based in Saudi Arabia.
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