Stocks Rise on Merrill Deals
Not many traders or other creatures were stirring on Wall Street the day before Christmas amid light activity in an abbreviated session.
Major U.S. stock indexes opened higher on Monday, with financials getting a boost from reports that Merrill Lynch & Co. («www.businessweek.com») has signed some deals designed to pump nearly $6 billion in much-needed cash into its coffers.
On Monday, the Dow Jones industrial average was trading 92.26 points, or 0.58%, higher at 13,542.91. The broader S&P 500 index rose 9.74 points, or 0.66%, to 1,494.18. The tech-heavy Nasdaq composite index gained 15.66 points, or 0.58%, to trade at 2,707.36.
Merrill seized the spotlight Monday on news of deals intended to shore up the financial giant’s balance sheet. Reuters and other wires services reported Monday that Merrill, hit by huge subprime mortgage losses, 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, a U.S.-based asset manager. Temasek will buy $4.4 billion of Merrill stock and has the option to buy $600 million more by March 28. Davis Selected Advisers, a U.S.-based asset manager that also runs mutual funds, will buy $1.2 billion in Merrill shares.
The deal would give Temasek a nearly 10% interest in the embattled brokerage and follows similar transactions with sovereign wealth funds undertaken by peers such as Citigroup («www.businessweek.com»), Morgan Stanley («www.businessweek.com») and UBS («www.businessweek.com») in recent weeks.
The announcement of the deal is likely a prelude to a huge write-down for the fourth quarter on Merrill Lynch’s subprime mortgage-related securities. Merrill’s third-quarter write-down of $8.4 billion triggered a $2.3 billion net loss, Reuters reported.
Earlier in the day, Merrill announced that it plans to sell most of its middle-market lending business to GE Capital, a unit of General Electric («www.businessweek.com»).
The financial terms weren’t disclosed, but the acquisition is slated to close in the first quarter of 2008 and will add more than $10 billion in assets and $5 billion in commitments to GE Capital Commercial Finance’s base of $260 billion. The most important aspect of the deal, however, is that it will allow Merrill to raise about $1.3 billion in capital for other parts of its business, including its porfolio of asset-backed securities.
Merrill shares were up 4.0% Monday.
The Christmas holiday makes this a quiet week for new economic data, but those who return to work before the new year will be watching the November durable goods and December consumer confidence reports due out on Thursday, as well as December’s new home sales figures to be released on Friday.
January NYMEX crude oil dropped 55 cents to $92.76 per barrel as traders focused on a warmer-than-usual outlook for the next two weeks, suggesting less demand for heating oil as the new year begins, CNBC Business News said. Oil prices climbed $2 per barrel on Friday, so there could be some profit-taking going on.
Among the stocks in the news Monday, Alcoa Inc. («www.businessweek.com») agreed to sell its packaging and consumer businesses to New Zealand’s Rank Group Limited for $2.7 billion in cash. The deal is expected to be completed by the end of the first quarter 2008. Shares rose 1.6%.
Consolidated Water Co. Ltd. («www.businessweek.com») fell 22.2% and could take as much as a 50% hit if the company can’t reach a viable agreement the British Virgin Islands, its only customer for a desalination plant that could account for up to a quarter of the company’s current earnings, according to Barron’s.
Vonage Holdings («www.businessweek.com») and AT&T («www.businessweek.com») have entered into a definitive agreement to settle their patent dispute. The companies had agreed in principle to a settlement on Nov. 7.
European stocks were trading higher Monday. In London, the FTSE 100 index gained 0.70% to trade at 6,479.30. In Paris, the CAC 40 index climbed 0.21% to 5,614.28. Germany’s DAX index rose 1.70% to trade at 8,002.67.
Major Asian markets finished higher. Japan’s Nikkei 225 index advanced 1.50% to 15,257.00. In Hong Kong, the Hang Seng index rose 1.82% to 28,128.80. The Shanghai composite index bounced 2.60% to trade at 5,234.26. Treasury market
Treasury yields bounced in concert with equities. The 10-year note was lower in price at 100-14/32 for a yield of 4.205%, while the 30-year bond was lower at 106-11/32 for a yield of 4.607%.
