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The Case of Sovereign Wealth Funds: A New (Old) Force in the Capital Markets
Allayannis, George (Yiorgos); Loeffler, Rachel Case F-1564 / Published October 15, 2008 / 9 pages.
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Product Overview

In mid-January 2008, Merrill Lynch announced a $6.6 billion mandatory convertible-preferred share issuance, much of which was placed privately with the Kuwait Investment Authority (KIA), the Korean Investment Corporation (KIC), and the Mizuho Corporate Bank. The case is set during the subprime-mortgage crisis, which plagued banks and depleted their capital. It focuses on the decision of John Thain to issue capital and place it with sovereign wealth funds (SWFs) in an effort to stabilize the company and put it on the road to growth and profitability again. The case describes the various types and origins of SWFs, their orientation, and their recent intensive investment activity in the global financial-services sector. The case also discusses the transparency of SWFs and their role in the global financial system as liquidity-providing long-term players. Finally, Merrill Lynch's decision to issue the specific financial instrument to replenish its capital (mandatory convertible-preferred) and its terms are analyzed.


Learning Objectives

The case can be used as a vehicle to pursue the following objectives: • To analyze the role of SWFs in the global financial system • To analyze SWFs’ strategy and investment in the financial-services sector amid the subprime-mortgage crisis • To understand the governance/transparency issues of SWFs • To evaluate Merrill Lynch’s decision to issue mandatory convertible-preferred stock

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  • Overview

    In mid-January 2008, Merrill Lynch announced a $6.6 billion mandatory convertible-preferred share issuance, much of which was placed privately with the Kuwait Investment Authority (KIA), the Korean Investment Corporation (KIC), and the Mizuho Corporate Bank. The case is set during the subprime-mortgage crisis, which plagued banks and depleted their capital. It focuses on the decision of John Thain to issue capital and place it with sovereign wealth funds (SWFs) in an effort to stabilize the company and put it on the road to growth and profitability again. The case describes the various types and origins of SWFs, their orientation, and their recent intensive investment activity in the global financial-services sector. The case also discusses the transparency of SWFs and their role in the global financial system as liquidity-providing long-term players. Finally, Merrill Lynch's decision to issue the specific financial instrument to replenish its capital (mandatory convertible-preferred) and its terms are analyzed.

  • Learning Objectives

    Learning Objectives

    The case can be used as a vehicle to pursue the following objectives: • To analyze the role of SWFs in the global financial system • To analyze SWFs’ strategy and investment in the financial-services sector amid the subprime-mortgage crisis • To understand the governance/transparency issues of SWFs • To evaluate Merrill Lynch’s decision to issue mandatory convertible-preferred stock