Merrill Lynch sold $11.1 billion in the securities that have led to massive write downs and said it plans to sell another $8.5 billion stock in a bid to cut risk and bolster its threatened capital reserves.
The share offering will be substantially dilutive, equaling more than a quarter of Merrill's current market capitalization. Shares traded recently down 5% to $23.10 after hours.
Chief Executive John Thain said the securities represented the "substantial majority" of Merrill's collateralized debt obligation, or CDO, positions, calling the sale "a significant milestone in our risk reduction efforts." The company also terminated hedge positions related to the portfolio at a loss of $528 million.
The company expects to record a $5.7 billion third-quarter write-down on the sales. Over the last year Merrill has recorded $40 billion in write-downs tied to its troubled asset holdings, one of the worst records on Wall Street. The write-downs were primarily responsible for last week's $4.65 billion loss at the investment bank. The company said it will also record a $2.5 billion charge related to its reset payment to Temasek Holdings, an investment company owned by the government of Singapore, and $2.4 billion in extra dividends due to the mandatory conversion of preferred stock. Temasek purchased a stake of 87 million shares in December.
Thain has been running out of options to raise capital even as the bank continues to hold billions of dollars of troubled assets, and has begun selling what he says are nonstrategic assets to offset the damage. Earlier this month, Thain announced the sale of Merrill's 20% stake in financial analytics and media giant Bloomberg LP for about $4.43 billion, along with a nonbinding agreement to sell a controlling interest in Merrill subsidiary Financial Data Services Inc. for about $3.5 billion pretax to an unnamed buyer.
