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Monday, April 14, 2008 1:12 AM


Wachovia Needs Another Transfusion


Wachovia joins the list of chronic anemics along with Citigroup (C), Washington Mutual (WM), Merrill Lynch (MER) and Countrywide Financial (CFC).

The Wall Street Journal is reporting Wachovia to get $8bn capital infusion.

WACHOVIA Corp, the fifth-largest US bank in stock-market value, is today expected to announce that it will get a capital infusion of several billion dollars from external investors.

Wachovia is expected to get $US6 billion to $US7 billion (up to $7.6 billion) from selling its shares to the investors for roughly $US23-24 apiece, according to people familiar with the matter. That price represents a discount of more than 15 per cent to Wachovia's share price on Friday.

Wachovia, led by chairman and chief executive G. Kennedy Thompson, is structuring its capital infusion in a similar fashion to that employed by Washington Mutual last week, when it raised roughly $US7 billion from buyout firm TPG.

Instead of going to shareholders exclusively, banks and Wall Street firms are looking for a third-party vote of confidence, a role that sovereign wealth funds and private equity groups have been eager to play.

While such arrangements can help reassure Wall Street that a bank is on solid footing, the deals tend to dramatically erode the value of the shares being held by investors who don't participate in the deal.

But with the turmoil deepening at many banks, the most desperate lenders aren't in a position to wait for markets to improve. Indeed, the expected cash infusion represents Wachovia's second dip into the capital trough this year.

In January and early February, Wachovia pocketed a total of $US8.3 billion in capital by issuing preferred stock and other securities to investors.

“These securities further strengthened our regulatory capital position and provide greater certainty that we are well positioned in 2008," Mr Thompson told shareholders in a February 19 letter.

The second round of fund raising is a sign that banks' fortunes have continued to deteriorate over the past month.
Patient Is Ill

Wachovia is clearly ill and in need of another lifesaving transfusion. Vital signs are poor with multiple relapses.




click on chart for sharper image

Without another transfusion, this could be terminal.

Merrill Lynch Reported To Be Recovering

Merrill Lynch, another chronic anemic insists its blood count is fine. The International Herald Tribune is reporting Merrill doesn't plan to raise more capital.
April 8, 2008
The U.S. investment bank Merrill Lynch does not plan to raise more capital and will continue to shrink its balance sheet amid the global credit crunch, Chief Executive John Thain said Tuesday.

"We deliberately raised more capital than we lost last year," Thain said at a media briefing in Tokyo. "We believe that will allow us to not have to go back to the equity market in the foreseeable future."

Merrill has so far written down $24 billion worth of investments related to the troubled U.S. mortgage market. Merrill has raised about $12.8 billion of capital since late 2007, following heavy subprime losses in the third and fourth quarters.

The bank has also looked beyond the United States for its funding, raising $6.6 billion from a group including Japanese, South Korean and Kuwaiti investors.
Merrill Lynch thinks it is fine. However, Wachovia thought it was fine in January and February. By April, Wachovia was looking very anemic.

Last week WaMu Raised Cash, Skeptical Eyebrows in a life saving transfusion. I am willing to bet still more transfusions will be needed for Citigroup, WaMu, Merrill Lynch, Wachovia, and others. The bottom is not in.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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