Motorola Inc. posted a hefty loss in the third quarter Thursday, citing the continued troubles of its cell phone division. The company will postpone the planned spin-off of the unit, and cut more jobs.
The maker of communications gear said it would get rid of 3,000 jobs by April, with about 2,000 of them coming from the cell phone unit. The company last announced 2,600 job cuts in April.
Motorola (MOT, Fortune 500) lost $397 million, or 18 cents per share, in the July-September period. It had earned $60 million, or 3 cents per share, in the same period a year ago.
Sales fell 15% to $7.48 billion.
The loss included 23 cents of charges, mostly for restructuring costs. Without the charges, Motorola would have earned 5 cents a share, reflecting unexpectedly strong results in its non-cell phone operations. Analysts polled by Thomson Reuters had on average expected the company to earn 2 cents per share on revenue of $7.82 billion.
For the fourth quarter, Motorola said it expects to earn 2 cents to 4 cents per share. Analysts polled by Thomson Reuters had expected the company to earn 7 cents per share in the quarter, excluding items.
Shares of Motorola fell 31 cents, or 5.7%, to $5.15 in afternoon trading, even as the broader market rallied.
The job cuts are part of efforts to cut costs by $800 million next year, Chief Executive Greg Brown said.
Motorola sold 25.4 million cell phones in the third quarter, down from the 28.1 million it sold in the second quarter. The company had said it expected a slight decline. With an 8.5% market share, it lost the spot as No. 3 cell phone maker worldwide to Sony Ericsson in the quarter, according to research firm IDC. Nokia Corp. (NOK) and Samsung Electronics Co. are No. 1 and No. 2, respectively.
For Motorola, "the loss of share continues to be extremely worrisome," said Rick Franklin, an analyst at Edward Jones. "This business continues to run without any wheels."
The cell phone unit lost $840 million, including a $370 million write-down of inventory. Revenue was $3.1 billion.
Sanjay Jha, who was appointed in August to lead the handset division, said the weak economy and stresses in the financial market were main reasons for the postponed spin-off freecreditreport. He said the unit would slim down its product portfolio and become a leaner organization.
Jha said the company had 20 major platforms for cell phones, making development unwieldy yet leaving Motorola with few products in the two categories that have been in demand this year: "smart" phones and very cheap phones.
He is pruning the portfolio to focus on three software systems: Windows Mobile, which Motorola already uses on a few smart phones; P2K, its own system, used on the Razr phone; and Android, a free operating system from Google Inc. (GOOG, Fortune 500) Competitor HTC Corp. recently launched the first Android phone. Jha said Motorola will have one by the 2009 holiday season.
Designers at Motorola have been too focused on making "bright shiny objects," Jha said. In the future, he wants them to focus more on making phones easy to use.
The troubles of the cell phone division stem from its inability to produce a follow-up to a phone that was, for a while, the "bright shiny object" everyone had to have: the Razr phone.
Jha also said Motorola will pull back from the cell phone markets of Europe and parts of Asia, though Jha said China will remain a focus for the company, along with the Americas.
Motorola is not alone in seeing a decline in cell phone sales. IDC said Thursday that global handset shipments declined 0.4% from the second quarter to the third, even though the quarter normally sees a pre-holiday ramp-up.
Sales at Motorola’s healthier units were essentially flat, and they boosted profits.
Home and Networks Mobility, which makes cable-TV set-top boxes, modems and related gear, saw its operating earnings increase 65% to $263 million, on $2.4 billion in sales.
Enterprise Mobility, which makes police radios and other communications equipment for organizations, posted operating earnings of $403 million, up 23%, on sales of $2 billion.
The leaders of 15 European nations agreed on Sunday to a plan to ease the global financial crisis by shoring up troubled banks.
French President Nicolas Sarkozy said the plan would refinance banks, guarantee interbank lending and ensure that troubled banks do not fail.
It also will protect individual depositors’ accounts and ease some regulations to give banks more flexibility.
The refinancing of the banks and the guaranteeing of interbank loans are good until the end of 2009.
"What we want is to give back banks the means to lend, to support the economy to enable households to borrow for mortgages or consumption and give companies the means necessary to invest for growth," Sarkozy said. "We cannot have a healthy economy and sustainable growth unless we have a solid financial sector."
Sarkozy announced the agreement after a meeting of leaders of the Eurozone countries, which use the euro currency. Sarkozy also holds the rotating European Union presidency.
European officials say the plan is not a gift to bank management and that managers, who contributed to the crisis should be held responsible. The refinancing will be made at market rates and will consider the financial health of the banks.
Each country will take slightly different approaches, because they have different laws and banking regulations, but their actions will be compatible.
"We have a tool kit and we will see what suits whom in order to achieve what we are setting out to achieve, which is to make sure that we don’t have an economic crisis in addition to the financial crisis approved payday advance in seconds. We need to get things moving again, shifting again. And when things have calmed down, we’ll go back to our basic training and responsibilities," Sarkozy said.
The leaders wanted to work quickly to reassure investors before the markets open on Monday. Sarkozy said France, Germany and Italy will hold Cabinet meetings on Monday and will announce concrete plans.
"These measures will be implemented in France without delay," Sarkozy said. British Prime Minister Gordon Brown met with Sarkozy and other leaders before the summit and told reporters there was "common ground now about what needs to be done" to soothe the financial markets.
On Wednesday, officials from the Eurozone countries will present their plan to the rest of the European Union at a meeting in Brussels, Belgium. Sarkozy said that they would then urge the United States to hold an international summit to manage the crisis.
"The crisis didn’t come from Europe. It began in the U.S. It has now become a worldwide crisis, and the issue of European structural institutions may be put on the table at some stage, but right now, we’re dealing an emergency. And we have to reform urgently an international financial system that needs to be reformed," he said.
– CNN Senior International Correspondent Jim Bittermann contributed to this report.
WASHINGTON–Orders to U.S. factories plunged by the largest amount in nearly two years in August as the credit strains began to hit manufacturing with full force.
The Commerce Department reported that orders for manufactured goods dropped by 4 per cent in August, compared to July. That’s a much worse performance than the 2.5 per cent decline that economists had expected. It was the biggest setback since a 4.8 per cent plunge in October 2006.
The weakness was led by big declines in orders for aircraft, down 38.1 percent, and autos, which fell by 10.6 per cent, the worst performance in nearly six years.
Orders for non-defense capital goods excluding aircraft, considered a good indication of business investment plans, fell by 2.4 per cent, the biggest setback in this category 19 months. It’s an indication that businesses are slashing their investment plans in the weak economy, and growing credit strains are making it hard for companies to get loans to expand and modernize.
The Senate on Wednesday approved an administration-backed bill to provide $700 billion to the Treasury Department to buy bad mortgage debt from the financial system as a way to get banks to resume more normal lending operations.
Analysts are concerned that the economy is so stretched, however, that the country is headed for a recession even with the largest government market intervention since the Great Depression.
An earlier report Thursday showed the number of newly laid off workers filing new claims for unemployment benefits rose to 497,000 last week, an increase of 1,000 from the previous week online payday advance. It was the highest level for jobless claims since just after the Sept. 11 terrorist attacks seven years ago.
The government is scheduled to release figures Friday on unemployment in September. The expectation is they will show layoffs rose by 100,000, the largest increase this year, with the unemployment rate holding at 6.1 percent.
The report on manufactured goods showed that durable goods, items expected to last three years, dropped by 4.8 per cent in August. Orders for nondurable goods, items such as petroleum products, food and clothing, fell by 3.3 per cent.
The dismal report on orders for August followed a report Wednesday from the Institute for Supply Management showing that manufacturing activity fell to the lowest level since the aftermath of the 2001 terrorist attacks.
Regulators and bankers failed on Saturday to reach a deal to end the crisis at investment bank Lehman Brothers, and emergency talks were extended to a third day as authorities seek to calm jittery financial markets.
So far this year, the government has sponsored rescues of Lehman rival Bear Stearns and mortgage lenders Freddie Mac and Fannie Mae.
But this time, U.S. Treasury Secretary Henry Paulson is adamant that taxpayer funds not be used, a source familiar with his thinking said on Friday.
The talks on Saturday ended without an announcement, but the final outcome could include hiving off Lehman’s bad assets into a “bad bank”, in which rival banks would acquire stakes, or even allowing it to file for bankruptcy, people briefed on the matter told Reuters earlier.
The crisis presents a delicate balancing act for Paulson and the Federal Reserve, who have urged Wall Street chiefs to come up with their own solution.
The authorities don’t want to be accused of encouraging excessive risk-taking by bailing out another yet another investment bank.
But they also cannot afford to let a blow-up of Lehman paralyze the financial system and deepen the credit crisis.
Investors said that if nothing is done by Monday, global financial markets could plunge, because of fear that the U.S same day payday loans paydayloans.com. government will have to prop up more financial institutions.
Bank of Japan Governor Masaaki Shirakawa said the country's low interest rates will help the economy avoid slipping into a “deep'' slump.
“Japan's economy is unlikely to experience a deep adjustment phase,'' Shirakawa said at a speech in Osaka today. The country's “accommodative environment for corporate finance is expected to continue to support business activity.''
The central bank last week described growth as “sluggish'' for the first time in a decade, indicating it's unlikely to raise the benchmark interest rate from 0.5 percent anytime soon. The world's second-largest economy is slowing because higher prices of oil and raw materials are eroding incomes and the global slowdown is weakening exports, Shirakawa said today.
“The economy may emerge from a recession phase early next fiscal year, but the central bank won't be able to raise rates before mid-2009,'' said Hideo Kumano, chief economist at Dai- Ichi Life Research Institute, who used to work for the central bank. Kumano predicts a rate increase “in the third quarter of next year at the earliest.''
Japan is more resilient than in previous slowdowns because companies have shed excess workers, capacity and debt, Shirakawa said. The country's financial institutions incurred “limited'' losses from the U.S. subprime loan problem compared with their U.S. and European peers, he added.
Weak Wages
The governor said he's seen little sign of inflation spreading from fuel and food products because wage growth has been “relatively weak.'' He said he's watching consumers' inflation expectations and how companies set prices to determine whether “second-round effects'' of inflation will emerge.
Toyota Motor Corp., Japan's largest automaker, said today that it will raise prices on some domestic models for the first time in 16 years to pass on higher costs, paving the way for smaller rivals to do the same guaranteed approval cash advance loans. Prices businesses pay for fuel and raw materials surged 7.1 percent in July, the most since the wake of the second oil crisis 27 years ago.
Consumer prices excluding fresh food probably climbed 2.3 percent in July from a year earlier, economists estimate an Aug. 29 report will show. That would be the fastest in a decade, breaching the zero to 2 percent range the bank considers represents stable prices.
“The current situation requires the Bank of Japan to carefully monitor both downside risks to economic growth and upside risks to inflation,'' Shirakawa, 58, said.
Low Rates
Shirakawa reiterated that his policy board is watching the risk that keeping rates low for a long time may overstimulate the economy should it pick up. Japan's key rate, the lowest among major economies, was last raised in February 2007.
“If the downside risks to the economy turn out to decrease, there is a risk that prolonging the period of accommodative financial conditions will lead to swings in economic activity and prices,'' he said.
Interest rates will stay unchanged through next June at least, according to 21 of 26 economists surveyed by Bloomberg this month. Four estimated higher rates and one predicted a cut.
“The chance for a rate cut is very slim,'' said Kyohei Morita, chief economist at Barclays Capital in Tokyo. “The central bank has emphasized that the current monetary conditions are accommodative.''
The bank shelved its two-year policy of calling for rate increases in April, the month Shirakawa assumed the bank's top position.
Bank of America proved its dexterity yet again on Monday by reporting better-than-expected results even as it juggled credit issues and its high-profile acquisition of the troubled mortgage lender Countrywide Financial.
The Charlotte, N.C.-based bank said it earned $3.41 billion, or 72 cents a share during the second quarter. That was down 41% from $5.76 billion, or $1.28, a year earlier, but better than the 53 cent per share profit Wall Street was expecting.
Sales improved from a year ago, increasing 3.5% to $20.32 billion.
That was also better than analysts had expected, making Bank of America the fourth of the nation’s largest banks to deliver a quarterly performance that topped forecasts over the past week.
"We are in the middle of a recession, from that standpoint this was a grand slam," said Anthony Polini, analyst at Raymond James & Associates. "I think the key going forward is can they repeat this quarter?"
The news also provided some encouragement to jittery investors, who have been closely tracking the performance of the financials. Bank of America (BAC, Fortune 500) shares gained nearly 7% in midday trading.
The company’s consumer and small business division bore the brunt of the profit decline. Profits in the division fell 66% as further deterioration in the housing market and slower economic growth put pressure on borrowers of home equity, credit card and small business loams, the company said.
Bank of America said its non-performing assets jumped to $9.75 billion, or 1.13% of all loans, during the quarter.
At the same time, the company said it was forced to set aside $5.8 billion during the quarter to account for loans gone bad or that could falter in the future.
Offering a much more tempered outlook on the broader economy than some of his fellow banking executives, Ken Lewis, Bank of America’s chairman and CEO, warned that credit losses would remain an issue. But he said they were manageable given today’s conditions.
"We are not in denial," Lewis told analysts in a conference call Monday.
Lewis added that he expected consumer-related losses to peak some time over the next two to three quarters.
Bank of America’s other key businesses - wealth management and its investment banking division - held up relatively well during the quarter, even as the investment banking unit took a $1.2 billion writedown, part of which was related to its exposure to mortgage-related securities.
Also encouraging was a jump in the company’s net interest margins, or the profits made from taking in deposits and lending them back out. Net interest income rose 25% during the quarter, as interest rate cuts by the Federal Reserve drove down short-term borrowing costs.
While Bank of America’s results revealed just how sound some of its key businesses remain, Monday’s earnings did provide plenty of insight into the recently completed Countrywide merger.
Bank of America said the troubled mortgage lender lost $2.33 billion during the quarter free credit report.com. But the company surprised many on Wall Street by stating it expects the acquisition to add to profits this year.
When the all-stock deal was first announced in January, Bank of America said it expected the deal to have little impact on earnings for the remainder of the year.
Lewis said the Countrywide acquisition would put Bank of America’s Tier 1 capital ratio, a measure of a bank’s ability to absorb losses, just below 8% in the coming quarters. But he stressed once again that the company’s lofty dividend is safe.
"We have not changed our philosophy about the dividend," said Lewis.
At the quarter’s end, Bank of America said its Tier 1 capital ratio stood at 8.25%. A ratio above 8% is generally considered a good sign for financial institutions.
Capital levels, along with liquidity, have become a key concern for large financial institutions as the credit crisis drags on. Ongoing deterioration in the housing market, mounting troubles in the economy and pressure from regulators have prompted financial firms to raise capital in the form of stock sales and dividend cuts.
Bank of America’s results offer another encouraging sign for the hard-hit financial services sector. The bank is the latest to report results above analysts’ expectations.
Citigroup (C, Fortune 500) booked a $2.5 billion quarterly loss on Friday, but managed to beat Wall Street’s dreary projections of an even bigger loss. Earlier last week, both JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500) reported a plunge in profit that was not as bad as analysts were forecasting.
Still left to report, however, are a number of regional institutions and thrifts, most notably Wachovia (WB, Fortune 500) and Washington Mutual (WM, Fortune 500). Both of them will release their results Tuesday.
Earlier this month, Wachovia warned that it expected to lose anywhere between $2.6 billion and $2.8 billion during the second quarter. Analysts are expecting WaMu to report a loss of $1.14 billion.
John Templeton, an investor and mutual fund pioneer who dedicated much of his fortune to promoting religion and reconciling it with science, has died. He was 95.
Templeton died Tuesday from pneumonia at Doctors Hospital in Nassau, Bahamas, said his spokesman Donald Lehr.
Templeton created the $1.4 million Templeton Prize - billed as the world’s richest annual prize - to honor advancement in knowledge of spiritual matters. Winners have included Mother Teresa, Billy Graham and Soviet dissident Alexander Solzhenitsyn.
Templeton was born in Tennessee and later moved to Nassau and became a naturalized British citizen.
He launched his Wall Street career in 1937 and was considered a pioneer in foreign investment, choosing companies and nations that were foundering or at points of what he called "maximum pessimism," Lehr said.
He also founded Templeton Funds, which he sold in 1992 to the Franklin Group for $440 million payday loans. Templeton, a member of the Presbyterian Church and a board member of the Princeton Theological Seminary, often started his mutual fund’s annual meetings with a prayer.
In 1987, he established the John Templeton Foundation to fund projects that could reconcile religion and science. The Pennsylvania-based nonprofit has an estimated endowment of $1.5 billion and awards some $70 million in annual grants.
Templeton was knighted in 1987 for his philanthropic accomplishments.
He is survived by two sons, a stepdaughter, three grandchildren and three great-grandchildren.
There was plenty of intrigue this week in the news that Hearst chief executive Victor Ganzi is stepping down from his post, citing "irreconcilable differences" over policy with the company’s board of trustees after six years on the job. Sure, it seems like CEO posts - in media and elsewhere - are highly precarious these days, but there was no glimmer of unrest at Hearst, which Ganzi, who served as CEO since 2002, joined 18 years ago.
Indeed, the company just published a glossy annual review in which Ganzi boasted that Hearst had achieved record revenues and operating cash flow in 2007. By Thursday morning, the Hearst corporate Web site had been revised. If you downloaded said annual review, Ganzi’s eight-page intro recounting last year’s performance and pledging to "endeavor to achieve the best results possible" in 2008 was as gone as he was.
In a few ways, Hearst is a singular enterprise among big American media giants. For one thing, the 121-year-old Hearst is the legacy of press baron William Randolph Hearst, who died in 1951 and, for all his ego and flair, might not have imagined that the company would be as vast as it is today, with magazines like Cosmopolitan, Good Housekeeping and Esquire, newspapers like the San Francisco Chronicle and Houston Chronicle, a passel of TV stations, and a business information division. And unlike Hearst’s original publishing business, today’s version is far more diverse and international and derives the majority of its estimated $1.5 billion in operating profits (on revenues near $8 billion) from big stakes in cable channels like ESPN, Lifetime, and Arts & Entertainment.
The other curiosity about Hearst is that it’s private - which isn’t just to say that it’s privately owned, but that its highest echelons have the mystique of a kind of secret society. And one of the qualities of this society is that its members don’t leave. This culture stems from the trust that The Chief, as William Randolph Hearst was known, set up. The trust is basically run for the benefit of heirs who The Chief would never know; it’s meant to dissolve when the last remaining Hearst who was alive when he died passes on - actuaries hired by the company have pegged that at 2045.
Today, there are some 60 beneficiaries, but Hearst wanted the trust in the care of non-family members. Of 13 trustees, his will mandated that eight of them are non-family. Accordingly, most of the current trustees are current and former Hearst managers, and the board of trustees oversees a separate 19-member corporate board. Although Ganzi is stepping down as both CEO and a director of Hearst, he remains, for now, a trustee - an appointment that is usually for life. If he leaves the trust, that would mark how truly unusual his departure is.
Another trustee is Frank Bennack Jr., Hearst’s vice-chairman and Ganzi’s predecessor as CEO for a 23-year-run during which some of the company’s game-changing investments in cable channels were hatched. Bennack, who is 75, is taking over as CEO while a search committee is formed to find a replacement for Ganzi. Even in retirement, Bennack has been a big presence at Hearst - in addition to hand-picking Ganzi, a lawyer who joined the company in 1990, both men played a big role in the building of the refulgent Hearst Tower that the company paid $500 million in cash to construct in midtown Manhattan.
When I wrote a story about the tower before it opened in 2005, it was Bennack who proudly gave me a tour, while Ganzi (typically) stayed out of the media glare payday loans in 1 hour. One of the inferences of Ganzi’s departure is that the differences in policy he had with his fellow trustees were at least partly the consequence of how he differed from Bennack. Unlike his predecessor, Ganzi did not come up through the newspaper and broadcast industries, and was not seen as having the ground level understanding of them that Bennack did. On the other hand, Ganzi - or Vic, as he is known at Hearst - delivered record numbers in each of his years at the helm and had a savant’s capacity for taxes, finance, acquisitions and more.
So what were these policy differences? Typical of Hearst, neither Bennack nor Ganzi would come to the phone. It’s easy to say that perhaps the trust lost confidence in Ganzi’s faith in the challenged newspaper business, which included buying a minority stake and rights for control in Dean Singleton’s MediaNews chain a couple of years ago.
But people internally say that wasn’t the issue. One might also question whether Ganzi’s approach to the Internet and digital businesses writ large - which has largely taken the form of minority portfolio investments in a variety of smaller companies - was sage. Then again, what media company would you say has conquered the web? The biggest deals done under Ganzi’s watch, besides MediaNews, were a stake in the Fitch bond rating service (also with rights to one day buy control) and the building of the Hearst Tower, which the company would argue has been both good for business and a smart investment. The best sense from people close to Hearst that I got was that, despite these moves and more, Ganzi’s plan for how to continue growing the company left his colleagues tepid.
So who in their right mind would want a job in which six years of record results isn’t enough to keep your job? This being the storied, mysterious Hearst - plenty of people, no doubt, both inside and outside of Hearst. Among those who would logically be seen in the running are Cathleen Black and David Barrett, who run Hearst’s magazine and television businesses respectively. (Barrett, unlike Black, is a Hearst trustee.)
One person who will be closely watched is James Asher, the company’s senior vice-president, who worked closely with Ganzi. Another name worth mentioning is Steven Swartz, the second-in-command in the newspaper division who is well regarded at the company and further from retirement than Barrett or Black - but perhaps is more logical as a second-in-command candidate. A Hearst spokeswoman said nothing has been decided yet and the search is only beginning. The only certainty is that Bennack will be back in the saddle until the trustees find another person who they think can fill his rather large shoes.
Google Inc. Chief Executive Eric Schmidt said Wednesday that the Internet search leader hopes its recently acquired advertising service DoubleClick will aid newspapers as they struggle to corral more online revenue.
"It’s a huge moral imperative to help here," Schmidt said during a question-and-answer session at an event hosted in San Francisco by Syracuse University’s Newhouse School of Public Communications.
Without providing specifics about how it might be accomplished, Schmidt said DoubleClick’s system for serving up online display ads could generate "significant" revenue online for newspapers.
Still, he acknowledged the boost probably won’t be enough to restore the hefty profit margins that newspaper publishers historically have enjoyed from print advertising.
Mountain View, Calif.-based Google completed its $3.2 billion acquisition of DoubleClick in March, after an extensive antitrust review that focused on whether the deal would give the combined entity too much power over the $40 billion online ad market.
Google (GOOG, Fortune 500) also has a financial incentive to bolster newspapers because the stories, pictures and other content that they distribute online creates more opportunities for the company to make money from short advertising links that appear on millions of Web pages each day.
But footing the bill to gather news and other information has become a more daunting task in recent years, as advertisers have shifted more of their budgets to the Internet in an effort to connect with consumers who are increasingly eschewing traditional media.
The shift has been particularly painful for newspapers, which have been laying off hundreds of workers and trimming other costs as their revenue crumbles.
Newspaper publishers also are boosting their online revenue, but so far those efforts haven’t been nearly enough to offset the decline in print advertising free credit reports. Last year, for instance, the U.S. newspaper industry’s overall ad revenue fell by 8% to $45.4 billion, according to the Newspaper Association of America.
Meanwhile, Google’s revenue last year rose 56% to $16.6 billion, widening the company’s lead as the Internet’s most profitable business.
In other comments, Schmidt reiterated his belief that advertising on mobile devices eventually will emerge as Google’s biggest source of profits. The company hopes to be in a better position to deliver ads to people on the go during the second half of this year, when it’s scheduled to unveil its new mobile-software package, called "Android."
Google’s plans to make Android available to wide variety of mobile handsets have caused conflicts for Schmidt in his role as a director of Apple Inc. (AAPL, Fortune 500), which makes the popular iPhone. Schmidt said he has had to excuse himself from "one or two" Apple board meetings involving the iPhone, which he said currently accounts for a "vast majority" of mobile traffic on Google’s search engine.
Merrill Lynch (MER.N: Quote, Profile, Research) CEO John Thain said that the world’s largest brokerage would consider selling its stakes in news and financial data company Bloomberg and money manager BlackRock (BLK.N: Quote, Profile, Research) if it needed more capital.
Speaking on a conference call, Thain said that he sees Merrill Lynch as “well capitalized,” but added that the company last year considered selling its roughly $13 billion stake in BlackRock or its roughly $5 billion to $6 billion stake in Bloomberg.
Thain has never before said that Merrill Lynch would consider selling its stake in Bloomberg or BlackRock, and his willingness to shed some of the firm’s strongest assets signal how difficult capital raising has become for investment banks.
“We will…figure out what makes the most economic sense for us, if we need to raise capital,” Thain said.
Merrill Lynch raised more than $12 billion from a series of large outside investors, including sovereign funds such as Singapore’s Temasek Holdings and the Kuwait Investment Authority, in December and January how to get a free credit report. Those capital raises came as the bank recorded more than $30 billion of writedowns in recent quarters.
The company’s shares have fallen by about a third since that last round of capital raising, which would make issuing equity more expensive than it had been.
But another factor would also make issuing common shares costly for Merrill: investors who gave money to Merrill in December and January must receive extra compensation if Merrill raises additional capital at too low a price.
An analyst estimated that if Merrill wanted to raise $1 billion of new capital by issuing stock, it would have to raise a total of $2.7 billion because of the compensation for prior investors.
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