Citigroup Inc and Merrill Lynch & Co, two of America’s largest financial institutions, turned to outside investors for a second time in two months, to replenish capital eroded by subprime mortgage losses.
Citigroup, the biggest US bank, is getting $14.5 billion from investors, including the governments of Singapore and Kuwait, former chairman Sanford Weill, and Saudi Prince Alwaleed bin Talal, the New York-based company said on Tuesday in a statement. Merrill, the largest brokerage, said it’s receiving $6.6 billion from a group led by Tokyo-based Mizuho Financial Group Inc, the Kuwait Investment Authority and the Korean Investment Corp.
Wall Street banks have now received $59 billion, mostly from investors in the Middle East and Asia, to shore up balance sheets battered by more than $100 billion of writedowns from the declining values of mortgage-related assets. Citigroup was propped up in November by a $7.5 billion investment from the Abu Dhabi Investment Authority. New York-based Merrill was helped by a $5.6 billion cash infusion last month from Singapore’s Temasek Holdings Pte and US fund manager Davis Selected Advisors LP.
“The only reason the banks are raising capital from the Middle East and Asia is because those are the only people who have the excess capital to lend,” said Jon Fisher, who helps oversee $22 billion at Fifth Third Asset Management, which holds shares of Citigroup and Merrill.
Citigroup declined 68 cents to $28.38 and Merrill fell $1.25 to $54.72 in early New York trading.
The writedowns have reduced Citigroup’s so-called Tier 1 capital ratio, which regulators monitor to assess a bank’s ability to withstand loan losses. With today’s capital increase, the Tier 1 ratio would be 8.2%, Citigroup said, keeping it above the company’s 7.5% target.
Morgan Stanley, UBS AG, Merrill Lynch & Co and Bear Stearns Cos also reached out to sovereign wealth funds or state-controlled investment authorities in Asia for money after bad investments depressed profits.
?Bloomberg