Cramer: Keep the Sheiks a Comin'
Cash-strapped Citigroup ( C) and Merrill Lynch ( MER) are reportedly ready to again tap foreign government-run funds to shore up their balance sheets, according to The Wall Street Journal. The two firms, hammered last year by writedowns related to mortgage-backed securities that led to ousters of their respective CEOs, already have reaped billions in investments from so-called sovereign wealth funds. Now Merrill is expected to pick up as much as another $4 billion from a Middle Eastern government investment fund and Citi could get as much as $10 billion from foreign sources in the Middle East and Asia, the Journal reported. Citi's board also is expected to meet Monday to discuss cutting the bank's dividend in half, the paper said. The move, which Citi has repeatedly said it would not take, could save $5 billion, the Journal said. The nation's largest bank also is expected to make major job cuts under new CEO Vikram Pandit.
Merrill already tapped $6.2 billion from fund firm Davis Selected Advisors and Temasek Holdings, a Singaporean state-owned investment company, on Christmas Eve. Citi sold a $7.5 billion stake to the Abu Dhabi Investment Authority, representing about 5% of the bank's shares. Morgan Stanley ( MS) and UBS ( UBS) are among the other major banks to recently sell stakes to overseas investors. Citi is expected to report fourth-quarter earnings Tuesday, while Merrill is set to report next Thursday. While both banks have said they expect massive writedowns, analysts have jostled to predict even greater losses. Citi, right before ousting CEO Charles Prince, said it expected to write down $11 billion, but Goldman Sachs analyst William Tanona predicted nearly $19 billion. Tanoma also estimates fourth-quarter writedowns at Merrill could hit $11.5 billion -- about $5 billion more than he initially anticipated. Merrill's $8.4 billion writedown in the third quarter led to CEO Stanley O'Neal's ouster. The firm tapped former NYSE Euronext ( NYX) CEO John Thain to replace O'Neal.