Temasek Has `Great Confidence' in Merrill's CEO Thain

By Jean Chua and Haslinda Amin

Aug. 27 (Bloomberg) -- Temasek Holdings Pte, Singapore's $130 billion sovereign wealth fund, said it has ``great confidence'' in Merrill Lynch & Co.'s Chief Executive Officer John Thain and plans to raise its stake.

Temasek, Merrill's biggest shareholder, received U.S. antitrust approval yesterday to increase its holding in the third-largest U.S. securities firm from 9.4 percent. Temasek said it wants to lift it to between 13 percent and 14 percent.

Merrill has a ``great franchise which has existed through many crises through a long period of time,'' Michael Dee, Temasek's senior managing director of international, said in a Bloomberg Television interview yesterday.

Temasek invested about $5 billion in Merrill since Dec. 24 after Thain, 53, replaced Stan O'Neal, who was ousted following the firm's biggest quarterly loss in its 93-year history. Merrill's writedowns make up a 10th of the more than $500 billion of credit losses by banks amid the subprime meltdown.

``The bottom line is financial institutions are still asking for more capital,'' said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which manages about $108 billion. With sovereign funds, ``there's still plenty of capital out there, so they're looking for somewhere to park that money.''

Merrill spokeswoman Danielle Robinson declined to comment yesterday, referring calls to Temasek.

Shares Fall

Temasek, wholly owned by Singapore's finance ministry, has been increasing investments in global financial services companies to take advantage of a stock-market slump that erased about $10 trillion in market value in the past year. The MSCI World/Financials Index has dropped 33 percent in the period.

The sovereign fund, run by Chief Executive Officer Ho Ching, 55, said last month it was putting a further $900 million in Merrill after it was compensated for the initial investment. Temasek said it will use a $2.5 billion reset payment for losses from its earlier purchase toward buying $3.4 billion of Merrill stock, and the securities firm will book the reset as an expense.

Merrill shares have fallen 55 percent since Temasek's first investment on Dec. 24. The stock fell 10 cents to $24.10 in New York Stock Exchange composite trading yesterday.

Temasek, which yesterday said profit doubled in the year ended March, said its decision to further increase its stake was based on Thain and his management team.

Diversity of Banks

``We had great confidence in John Thain; we had great confidence in the rest of the management and the board,'' said Dee, a former Morgan Stanley banker who joined Temasek this month.

At least a dozen U.S. lenders and credit unions have been closed by state and national regulators since 2007 as mortgage markets collapsed. Columbian Bank and Trust Co. of Topeka, Kansas, closed Aug. 22, becoming the ninth U.S. bank to collapse this year. Columbia had $752 million in assets and $622 million in deposits.

Temasek is confident about its Merrill investment because the U.S. banking system is diversified enough with thousands of lenders to handle the failure of a small group, Dee, 52, said.

``The strength of the American financial system is the diversity and that no single bank or no single group of banks is really that large,'' he said.

Banking Stakes

The U.S. Federal Trade Commission said in a statement that it cleared the transaction early, letting Temasek make an investment. Thain, the former Goldman Sachs Group Inc. president who also ran the New York Stock Exchange, was named chief executive officer of Merrill in November, the first outsider to lead the firm. His appointment was effective Dec. 1.

Temasek is also the biggest shareholder of London-based Standard Chartered Plc and Singapore's DBS Group Holdings Ltd., and owns stakes in Barclays Plc, India's ICICI Bank and lenders in Indonesia, South Korea and Pakistan. The banks make up 40 percent of its portfolio.

Chairman S. Dhanabalan said on Aug. 21 Temasek may buy more shares in Merrill and expects the stake will boost the value of its portfolio in the ``long term.''

Banks and securities firms have raised more than $350 billion in the past year after the writedowns and credit losses caused by the collapse of the U.S. subprime mortgage market, data compiled by Bloomberg show.

To contact the reporter on this story: Jean Chua in Singapore at jchua4@bloomberg.net