Wall Street Shores Up Finances With Overseas Capital

With concerns about a deepening global credit crisis unabated, major U.S. financial institutions are increasingly turning to sovereign wealth funds for capital infusions.

The most recent was Merrill Lynch & Co Inc., which has been hit by huge subprime mortgage losses, that today said it would boost its capital by raising up to $6.2 billion in a private placement with Singapore’s Temasek Holdings and Davis Selected Advisors.

Other December actions, according to Reuters, we:

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  • December 19 – After recording a fourth-quarter loss and $9.4 billion of write-downs, Morgan Stanley sold a $5 billion stake to China Investment Corp. (The fund will get equity units convertible into as much as 9.9% of the bank’s common stock, according to Reuters).
  • December 10 – The Government of Singapore Investment Corp. injected about $9.75 billion into UBS AG (which had announced a $10 billion write-down and said it could have its first full-year loss in a decade) in exchange for a stake of up to 9% in the Swiss bank. An unnamed Middle East investor also agreed to buy an additional stake in UBS of about 1.5%.

Other actions:

  • November – Citigroup sold up to 4.9% of itself for $7.5 billion in equity units convertible to common shares to the Abu Dhabi Investment Authority. Citigroup said it might have to record an $8 billion to $11 billion write-down for assets linked to subprime mortgages.
  • October – CITIC Securities Co. agreed to invest about $1 billion in Bear Stearns Co. securities that would convert into about 6% of the U.S. investment bank (Bear Stearns will spend a similar amount on CITIC debt that will over time amount to a 2% stake).

Subprime-related Litigations Spur Spike in Shareholder Suits

U.S. lawyers are on track to bring about 58% more shareholder class action cases this year, Reuters reports.

A study from NERA Economic Consulting indicated there will be 207 shareholder lawsuits filed in 2007 requesting class action status, compared to 131 for 2006. The spike can be attributed to lawsuits against investment banks, lender, and other financial institutions following the subprime mortgage market collapse (See State Street Faces Two More Lawsuits Over Bond Fund Losses), according to the report.

According to NERA, as of December 15, there were 198 new shareholder cases requesting class action certification, including 38 involving subprime mortgage issues, Reuters said. The study’s authors said that more litigation is likely as the crisis in the credit markets continue and the market for subprime mortgages continues to suffer.

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After a lull in filings last year, new class action cases are back up to 2005 levels.

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