Merrill sets $5.7 billion write-down

By Christian Plumb and Jonathan Stempel

NEW YORK (Reuters) - Merrill Lynch MER.N said on Monday it will take a $5.7 billion (2.9 billion pound) third-quarter write-down as it unloads huge amounts of risky debt, and raise $8.5 billion by selling new stock.

The Wall Street investment bank and brokerage announced its plans less than two weeks after posting a $4.9 billion second- quarter loss, hurt by more than $9 billion of write-downs.

Merrill said its stock sale includes $3.4 billion to Singapore's state-run Temasek Holdings TEM.UL, one of its largest investors, and may grow to $9.8 billion to meet demand. Management also plans to buy 750,000 shares, it said.

Monday's write-down and plans to raise capital may raise further questions about Chief Executive John Thain's ability to turn around Merrill. The company has lost $19.2 billion in the last year and suffered more than $40 billion of write-downs from subprime mortgages and other risky debt.

"Are things that much worse than we were led to believe?" said James Ellman, president of Seacliff Capital in San Francisco. "If people were going to believe Thain when he said Merrill raised more capital than it needed to and had taken conservative marks on its securities book, I'm not sure they're going to believe him tomorrow morning."

During a conference call on July 17, Thain said: "Right now we believe that we are in a very comfortable spot in terms of our capital."

Earlier this month, Merrill completed the sale of its 20 percent stake in Bloomberg, the news and financial data company, to Bloomberg for $4.43 billion.

Merrill declined to comment further on the stock offering. The company's market value was about $23.9 billion as of Monday's close, based on reported shares outstanding.