Citigroup and Merrill Lynch are in discussions to seek additional cash infusions from foreign governments to help cover losses from overexposure to mortgage-related investments, reports the Wall Street Journal.

In recent months, foreign governments have invested about $27 billion in Merrill, Citi, UBS AG and Morgan Stanley. Additional losses for the two companies could reach $25 billion.

Citi is looking at an additional $10 billion infusion from foreign governments and Merrill is expected to get between $3 billion and $4 billion, much of it coming from a Middle Eastern government investment fund.

Citi’s board is expected to meet Monday to discuss cutting the firm’s dividend in half, possibly saving $5 billion a year, and Vikram Pandit, Citi’s new chief executive, is expected to announce major layoffs that could affect 30,000 workers.

Infusions from outside investors can delay a downgrade and help companies avoid selling valuable assets or withdrawing from certain markets. Foreign investments of less than 10% in U.S. companies can also bypass certain regulations and requirements.

So far, the Bush Administration has been supportive of these types of infusions.

“I’m fine with capital coming in from overseas to help bolster financial institutions,” President Bush said last month. “I don’t think it’s a problem. I think what will be a problem is to say we’re not going to accept foreign capital, or we’re not going to open markets, or we become protectionists.”

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.


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