Merrill Lynch raised more than $12 billion in December and January, but the capital offerings included an unusual feature: a promise to protect the investors from future capital raising.

Those provisions are limiting Merrill Lynch’s choices now as it looks to raise capital. If Merrill were to try to offer more than $1 billion of equity capital at its current share price, it would have to raise an additional $4 billion under the provisions of the December and January deals, to compensate those investors.

That’s why Merrill Lynch is much more likely to try to sell assets, analysts said.

Below is a table that shows how much additional capital Merrill Lynch would have to raise if it tried to sell at least $1 billion of common stock or securities convertible into common stock. The top table assumes that Merrill sells shares at its current share price.

The interactive calculator below that allows you to input a share price, to see how much more Merrill would have to raise.

The calculation is based on the approximate number of shares Merrill sold in its December 24 offering, and the number of shares that its January 15 convertible offering can convert into. If Merrill issues shares at a price below the “share price embedded in those offerings,” it must compensate the December and January investors. The additional payment Merrill must make is essentially equal to the “share price embedded in those offerings” minus the current share price, times the approximate number of shares sold.

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For banks and brokers, it’s a mad, mad, mad, mad world these days. Financial institutions have recorded more than $50 billion of loan losses and writedowns, and total losses could top $400 billion.
Banks and brokers are suffering, but so are investors. Nobody likes losing money in bad securities, but when fraud, mismanagement, or lax underwriting may have played a part in the proceedings, banks can find themselves in the witness box in all kinds of class-action lawsuits. At times like these, every bank needs some sage legal counsel.
One great thing about New York–wherever there’s a problem, there’s a panel of experts to guide you. On November 28, a panel including P.J. Mode, a special counsel to Citigroup, will discuss defending against legal liability to investors, the government, and customers.
Citigroup said last week that it could write down $8 billion to $11 billion of assets linked to subprime mortages in the fourth quarter, and is already facing lawsuits seeking class action status. Citi has said the claims are without merit, and it will defend itself vigorously.

If American Home Mortgage Investment Corp. makes a noise on a Friday night, and nobody is there to hear, does it fall? 
 
The answer would seem to be yes. The mortgage lender’s shares plummeted 40 percent on Monday morning, after the company put out a press release at 10:19 p.m. EDT on Friday saying that it was writing down assets and receiving margin calls on credit facilities.

The move comes as the subprime mortgage bond market enters deep freeze mode amid a broad credit market pullback hitting everyone from newlywed home buyers to leveraged buyout artists.
 
There are sometimes fair reasons for putting out a press statement late at night before a weekend or a holiday. For example, parties may agree to a merger deal late at night, and may want to put out a statement immediately.  Or maybe rumors are moving a company’s stock, forcing a release.
 
But timing a release for when people are unlikely to see it is a time-honored practice for companies hoping to evade scrutiny. 
 
Buyout giant KKR & Co. LP filed for its IPO late on July 3 the day before the U.S. Independence Day holiday, in a move likely designed to minimize publicity for a sector that had received unwanted Congressional attention after Blackstone’s IPO. That move prompted this DealZone blog post. 
 
American Home Mortgage has been a reluctant communicator in the past. On July 19, its shares dropped more than 20 percent on a rumor that one of its banks had withdrawn a credit facility. The New York Stock Exchange requested the company issue a statement indicating whether there were any corporate developments to explain the move, and the company declined to comment.  The company was not immediately available for comment for this blog post.
 
Whether the company chooses not to communicate, or to communicate late at night, its shares are undoubtedly suffering–they were quoted on Mondy morning at about a fifth of their value at the beginning of the year. 

(Photo: Reuters file)