"Singapore state fund counts Merrill losses"

I have reproduced an article below, sourced from singapore-window. If it's good enough for the Financial Times, it's definitely good enough for this blog. Maybe not good enough for the Straits Times though, that paragon of publishing excellence.

Do note that this is a follow-on from a previous post.

Singapore state fund counts Merrill losses 
Financial Times 
Januray 8, 2009
By Saskia Scholtes and Greg Farrell in New York

TEMASEK, the Singapore state investment fund, is sitting on significant paper losses related to its stake in Merrill Lynch, the investment bank acquired by Bank of America last week. 

The state agency's unrealised losses could amount to more than $2 billion, excluding any hedges, according to a Financial Times analysis based on publicly available filings.

The loss is emblematic of the damage the financial crisis has wrought on sovereign wealth fund investments in the banking sector and helps explain why funds have been reluctant to commit further capital to banks.

Some 40 per cent of Temasek's portfolio is in the financial sector. The fund has suffered paper losses on other investments including those in Barclays, Bank of China and China Construction Bank.

Temasek on Monday, Jan 5, disclosed it had converted its 13.7 per cent stake in Merrill into BofA shares following the acquisition.

On December 31, the last day of trading before the deal closed, Temasek's remaining stake in Merrill - for which it paid an average of $23 a share - had dropped to $12.10.

After ploughing $5 billion into Merrill between December 2007 and February 2008, and with a further $900m commitment last summer, Temasek owns 189m BofA shares, according to Monday's disclosure.

At yesterday's opening price, they were worth $2.7 billion.

However, Temasek appears to have sold more than 30m shares of Merrill stock in the first and third quarters of 2008, according to regulatory filings. And, even if Temasek sold at the lowest possible prices in these periods, the sales would have generated a modest profit to defray some of Temasek's unrealised loss.

Temasek declined to comment.

It could have been worse - Temasek's initial investment allowed it to buy more than 104m shares at $48 per share.

But, after Merrill was forced to raise further capital in July, the terms of Temasek's original investment were reset. This effectively bought Temasek 151m new shares in Merrill for just under $6 per share, bringing the average price paid per Merrill share to a little over $23.

Temasek's investment suffered again in September, as Merrill shares plunged on concerns about the US banking sector.

Any losses seemed to vanish when BofA agreed to buy Merrill in an all-stock deal that valued the latter at $29 a share. In the immediate aftermath of the announcement, it appeared that Temasek stood to gain about $1.5 billion from the acquisition.

BofA's shares have since slumped, however. When the deal closed, BofA's shares were trading at $14.08. According to the terms of the transaction, every share of Merrill Lynch, which had about 1.6bn shares outstanding, would be exchanged for 0.8595 shares in BofA.

Additional reporting by John Burton in Singapore