AIO Finance Analysis

Giant Write-Down Is Seen for Merrill

Merrill Lynch is expected to suffer $15 billion in losses stemming from soured mortgage investments, almost double its original estimate, prompting the firm to raise additional capital from an outside investor.

Eric Thayer/Reuters
John A. Thain, the chief of Merrill Lynch, is urging change.
Times Topics: Sovereign Wealth Funds

Merrill, the nation’s largest brokerage firm, is expected to disclose the huge write-down when it reports earnings next week, according to people who have been briefed on its plans. The loss far exceeds the $12 billion hit many Wall Street analysts had forecast.

To shore up its deteriorating finances, Merrill is now in discussions with investors in the United States, Asia and the Middle East, including American private equity firms, to raise about $4 billion in the coming days, these people said.

The developments underscore the rising toll that the mortgage crisis is taking on many once-proud Wall Street banks. In recent months Merrill and several other firms have grabbed financial lifelines from wealthy foreign governments. Further investments by so-called sovereign wealth funds could prompt scrutiny by Congress.

The latest moves at Merrill come as John A. Thain, who became the company’s chairman and chief executive in December, struggles to bolster the firm’s capital, burnish its reputation and avoid the toxic internal battles that have hurt the firm in the past.

Mr. Thain, who won plaudits as head of the New York Stock Exchange, has wasted little time. After he took over last month, Merrill Lynch promptly sold a $5.6 billion stake to Temasek Holdings, which is controlled by the government of Singapore, and Davis Selected Advisers, a money management firm based in Tucson.

During a meeting in December in London, Mr. Thain told anxious employees that Merrill expected further losses after an $8.4 billion write-down in the third quarter. He also said the firm would require additional capital. He said the fourth quarter would be a “very bad quarter,” those attending recalled.

Mr. Thain has made clear that Merrill would not sell its 49 percent stake in BlackRock, the global money management firm. But he has said that Merrill is considering selling noncore assets like its stake in Bloomberg, the financial news and information company founded by Mayor Michael R. Bloomberg of New York. In a research report, Brad Hintz, a securities analyst at Sanford C. Bernstein & Company, said that stake was worth about $4 billion.

Mr. Thain also said at the London meeting that Merrill’s management style needed to change. Recalling his days as a co-president of Goldman Sachs, Mr. Thain said that he wanted employees to build consensus.

Among other things, that means Merrill will now pay fewer bonuses based on individual performance and instead focus on the performance of a team. Many employees received bonuses this week that included a greater portion of stock than in the past.

Merrill is hardly alone in seeking capital from overseas. United States financial institutions have raised more than $29 billion from foreign governments and their related investment entities, according to the market research firm Dealogic.

In recent months, the Government of Singapore Investment Corporation, Singapore’s lesser-known government fund, invested $9.7 billion in UBS; Citigroup sold a $7.5 billion stake to the Abu Dhabi Investment Authority; and the China Investment Corporation poured $5 billion into Morgan Stanley.

If a foreign government takes another big stake in Merrill, Congress might ratchet up its scrutiny of sovereign wealth funds, which have ballooned thanks to rising oil prices and booming emerging markets.

On Thursday, SenatorCharles E. Schumer, Democrat of New York, expressed concern about the amount of money American financial institutions are contemplating raising from sovereign wealth funds.
“Foreign investment, in general, strengthens our economy and creates jobs,” Senator Schumer said. “Because sovereign wealth funds, by definition, are potentially susceptible to noneconomic interests, the closer they come to exercising control and influence, the greater concerns we have.”

So far, none of the foreign investors that have bought into United States banks have sought management roles. “All have been very consciously structured to be passive,” said H. Rodgin Cohen, chairman of Sullivan & Cromwell, who has worked on a number of these deals. “None have asked for directors.”
In addition to seeking funds from outside investors, which heavily dilutes the stakes of existing shareholders, Merrill Lynch has sought alternative ways to raise capital. In December, it agreed to sell most of its commercial finance business, Merrill Lynch Capital, to General Electric, raising about $1.3 billion in equity.

Mr. Hintz, the securities analyst, suggested another option would be to reduce the firm’s fixed-income business by a third, which would add about $3 billion in capital.

He estimates that Merrill will write down its $27 billion of combined collateralized debt obligation and subprime-related exposures by $10 billion and report a loss of $5.10 a share for the fourth quarter. Any write-down above $20 billion, he said, would “significantly increase leverage and would threaten the credit ratings of the firm.”

During the London meeting, Mr. Thain said that Merrill would have to build its presence in China as well as expand its principal investing businesses, including private equity, commercial real estate and infrastructure.

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Source: new york times

JEL Corp

The latest scandal to hit the stock market belongs to JEL Corp, which was suspended in September 2007 following news that SGX suspected something was wrong with their reporting and financials. The CAD were called in and KPMG was appointed as the independent forensic auditor to investigate into the affairs of the company (the usual procedure). Needless to say, SGX had to suspend trading in the counter as it would not create a "fair and orderly" market.

Now, on January 8, 2008, the auditors have issued their audit report and it's not a pretty picture. Basically, the gist of it is saying that there were deliberate attempts to falsify documents, create fictitious invoices (hence boosting revenues), use creative accounting entries to reduce expenses (hence inflating profits) and non-disclosure of related party loans. The main culprits which were named include Mr. Eric Tan (former Chairman), Mr. Eric Leow (Director) and Mr. Wee Teck Han (CFO). After reading the KPMG report, I must say it's quite appalling how these "irregularities" have…

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Source: Value Investment

New Revamped STI Index

The new revamped STI index will be launched tomorrow.
The new index will be slimed down to 30 stocks. Some notable companies that have been removed include Creative Technology, Venture Corp and Chartered Semiconductor, either for failing to meet the minimum market cap requirement or because their shares were not sufficiently liquid over the past year. It comes at no surprise as the electronics sector once the pillar of our economy growth is now past its prime. In their place come two hugely popular China stocks - Yangzijiang Shipbuilding and property firm Yanlord, together with SIA Engineering and commodities/palm oil firm Wilmar International.

New STI Index

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Source: The Finance

SIA Engg - TP $4.92

I am neither a pure fundamentalist nor a technician but surely I have a little bit of knowledge on both. I am pretty surprised on the performance of SIA Engg past few days. Puzzled as to why it recoverered while the others have gone down, I tried to look at its chart. This is my first technical analysis on any company, and I shall give a try. Fundamentally I know SIA Engg is a good company.

As you can see, the stock has been hovering around its support and resistance of $4.14 and $4.95 respectively. It seems to have recently rebounded from its support with good volume and macd histogram. Expect the stock to hit $4.90 soon.

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Source: STI-Stocksinfo

Well, Look What The Cat Dragged In

"We are not considering any other deals and will continue pushing the partnership with Singapore Airlines," said Li Fenghua, president of China Eastern after the vote at a special meeting. In November, Singapore Airlines and its parent, Temasek Holdings, signed definitive agreements with China Eastern to take a 24% stake in the carrier worth HK$7.2 billion or HK$3.80 per share.

The battle between Air China's (0753) parent China National Aviation Corp(CNAC) and Singapore Airlines over SIA's potential partnership with China Eastern Airlines (0670) took a new twist yesterday after China Eastern shareholders voted against the deal.

The deal was voted down yesterday with 77.61% of attending minority shareholders going against it. Altogether, 75% of H-share and 94% of A-share voting power opposed the deal.

Source: Malaysia Finance

Old Chang Kee IPO

Closing date of application: 14 January 2008
Commencement of trading: 16 January 2008

Established in the 1986, Old Chang Kee is engaged in the maufacture and sale of affordable food products under their "Old Chang Kee" brand name.

Beginning with just their signature product curry puff, they have now introduced more than 40 other food products sold through their takeaway retail outlets.

They also have dine-in operations at our Old Chang Kee Take 5 retail outlets located at Icon Village, Square 2, Ogilvy Centre, Golden Shoe Car Park, Eastpoint Mall and West Mall, which offer a suite of local delights such as curry chicken or beef stew in loaf/rice, sambal fish rice, curry noodles and nasi lemak as well as our food products.

At present, they have 54 retail outlets in Singapore, 2 retail outlets in KL, and 3 retail outlets in Chengdu....

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Source: Extraordinary Profits

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