Merrill's subprime woes continue

Asian investors led by Temasek shore up Merrill's equity capital base, while the US investment bank extends debt funding to Lone Star so that it can take CDO exposure off Merrill's books.

Merrill Lynch on Monday forecast a third quarter loss of $5.7 billion and announced a series of steps to shore up its capital by $8.5 billion, just days after it declared a second quarter loss of $4.6 billion. Measures to deal with the subprime-related problems include extending debt funding to Lone Star so that it can take $11 billion of collateralised debt obligations CDOs off the US investment bank's books.

The $8.5 billion capital increase is coming from an...

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