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The Markets January 16, 2008
Garden State Pension Plans Takes Citi, Merrill Equity Stakes
Causing a stir among Wall Street pundits, the state of New Jersey’s $80-billion pension plan will take equity positions in both Citigroup and Merrill Lynch&Co. – both suffering mightily from their subprime mortgage holdings.
Reported by Fred Schneyer
According to various news reports, including a New York Times Wall Street blog, the Garden State will invest $400 million in Citigroup and $300 million in Merrill Lynch by buying convertible preferred shares in the two beleaguered financial services firms. The New Jersey Division of Investment also bought a small piece in Merrill’s convertible-stock offering, according to the press accounts.
Many Wall Street firms, battered by billions in subprime mortgage losses, have been scrambling recently to raise cash around the world. Trying to explain the state’s investment move, the reports said the mandatory convertible securities carry a coupon of 7%, although they also have a conversion premium of 20%.
Not only that, but the reports pointed out that pension officials have been scrambling to pump up returns through hedge funds and private equity investments. So a move like New Jersey’s “could prove profitable enough to take a risk on,” the Times investment blog asserted.
A MarketWatch report also pointed out that the state has a vested interest in keeping Citi running smoothly since so many Garden State residents work for the company and several Wall Street firms have operations in New Jersey cities like Hoboken and Jersey City.
Finally, according to the media reports, Governor Jon S. Corzine is an old Wall Street hand, being the former Goldman Sachs chairman and chief executive officer.