April 15, 2008 / 10:08 AM / 11 years ago

UPDATE 1-Temasek says bought $600 mln Merrill shares in Feb

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SINGAPORE, April 15 (Reuters) - Singapore state investor Temasek [TEM.UL] said on Tuesday it had exercised an option to buy an additional $600 million worth of Merrill Lynch MER.N shares, raising its investment in the U.S. bank to $5 billion.

Temasek bought the additional 12.5 million Merrill shares in February at $48 each, the same price it paid when it made its initial investment, a Temasek spokeswoman said.

Temasek joined other state funds from the Middle East and Asia to provide lifelines to U.S. and European banks hit by the collapse of the U.S. subprime property market.

But Temasek is potentially sitting on losses of around $540 million as Merrill shares have fallen 11 percent below its purchase price.

Late last year, Temasek agreed to buy $4.4 billion worth of Merrill shares at $48 each as part of a capital injection by the Singapore fund and asset manager Davis Selected Advisers. That deal gave Temasek the option to buy an additional $600 million worth of Merrill shares by end-March.

Merrill raised more capital from Middle East and Japanese investors in January.

Merrill Chief Executive John Thain said earlier this month in Tokyo that the U.S. investment bank does not plan to raise more capital and will continue to shrink its balance sheet amid the global credit crunch.

Merrill has written down $24 billion worth of investments related to the troubled U.S. mortgage market, which pushed the bank to report a loss of more than $8 billion in 2007.

Analysts expect Merrill to further write down $3-$5 billion when it reports its first-quarter earnings later this month.

Credit Suisse said in a report last week that the U.S. banking crisis could potentially result in $650 billion in total credit-related losses, of which only 40 percent has been revealed so far.

Of that $650 billion, $390 billion could pertain to lending institutions which may need to raise capital against this, the brokerage said in a global equity strategy note.

It noted banks have so far raised about $160 billion. (Reporting by Saeed Azhar; Editing by Ian Geoghegan)

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