The second round of recapitalising Wall Street is under way and the price tag will double the new capital being sought to over $US50 billion, a fantastical sum only a couple of months ago.
Having already pumped upwards of $US27 billion in new capital into Citigroup, UBS, Bear Stearns, Morgan Stanley and Merrill Lynch big foreign funds are about to open their wallets again for a second round of funding.
Reports overnight said that Merrill Lynch is looking for around $US4 billion in new a second capital raising, as the hole in the US investment bank's balance sheet continues to grow.
It is expected to reveal around $US15 billion in losses when it reports later this week.
The Kuwait Investment Authority is expected to be a significant investor in the new deal, which could be announced to coincide with the latest profit, sorry, results announcement.
Other investors could come from Europe as Merrill's looks to top up the earlier $US6.4 billion injection from Singapore and a group of US investors.
There are suggestions in US and European media overnight that if Merrill's losses top the $US15 billion and even the $US20 billion, then questions will be raised about whether the company will have enough capital to continue trading in its current form.
KIA could also invest up to $US billion in Citigroup which is due to report fourth quarter earnings tonight, our time.
Wall Street commentators say that the KIA is changing its strategy in order to move more quickly than competitors and seize opportunities amid the turmoil in the US credit markets.
Both the price and the terms of the deals at Citi and Merrill are still being negotiated but if they follow the shape of earlier deals, it will be expensive money. Citigroup is already paying another Mid East investor, the Abu Dhabi Investment Authority, 11% a year for the injection of $US7.5 billion late last year..
Wall Street analysts reckon US banks and others with continuing exposure to the subprime black hole (which includes all those collaterallised debt obligations which continue to implode as house prices fall) could reveal write-offs and losses approaching $US40 billion this week and next.
Action taken by Citi and Merrill will be closely watched by other institutions to see how convincing the latest news is. After all, both have had two goes at getting it right but the continuing slump in US housing prices (and the spread of the crisis to consumer debt and possibly in the esoteric area of credit default swaps (CDS) is threatening other parts of their balance sheets, and those of other banks and financial groups.
Citigroup is tipped to announce a write-down of close to $US billion and present plans to raise as much as $US14 billion new capital from the Chinese and public market investors as well as the KIA.
But the Wall Street Journal reported that the Chinese Government was blocking a move by the China Development bank to inject $US2 billion into Citigroup as part of this week's package of capital raising measures.
Citigroup is expected slash its dividend by as much as 40% to preserve capital.
(UBS and Washington Mutual, a big savings and loan which also reports this week have already cut or eliminated dividends to save money).
With the $US 7.5 billion Citigroup raised in late November, the new funding, if achieved, would see the fantastic sum of more than $21 billion in new capital raised by America's biggest bank by assets.
At one stage last year a figure that large wasn't even assumed to be the outcome for the bank from actual losses on subprime mortgages and CDOs: its financial position has worsened markedly to the point where upwards of 20%-25% of the bank could be owned by a group of big investors, and the remaining shareholders diluted.
Abu Dhabi and an existing Saudi investor already control around 10% of Citi. Such a level of control would have been unthinkable six months or so ago. Now it's a sign of the parlous financial state this financial giant now finds itself in.
It, like Merrills need the new investors to provide the money to keep the bank regulators happy, keep capital plentiful and keep the credit rating in tact.
Merrill Lynch on Thursday is expected to announce a write-down of $US10 to $US20 billion: another impossibly large sum.
Any new money from the KIA and others investors would follow the $US6.4 billion Merrill raised last month from Temasek, the Singapore government fund, and Davis Selected Advisors of New York.
Besides Merrills and Citigroup, Washington Mutual reports this week and is expected to produce a loss.
It is already looking for a couple of billion dollars in new money as well as cutting dividends, announcing plans to fire thousands of staff and getting out of subprime mortgages, which was its best business in recent years.
JPMorgan Chase and Wells Fargo, a big Californian bank with a strong mortgage book, are expected to report a drop in quarterly earnings but are expected to remain in the black.
While Morgan Chase has avoided the worst of the mortgage problems so far, analysts point out it is exposed in other areas, such as credit default swaps, which are starting to worry big investors. It is also a big holder of so-called 'hung bonds' which are related to uncompleted leveraged takeovers last year.
There is $US250 billion of such debt on the balance sheets of big Wall Street investment banks. That's a rising cost and falling value for the likes of JP Morgan Chase.
These deals are of course on top of the oddest bail out of all: the move late last week by Bank of America, to buy the struggling mortgage giant, Countrywide Financial for just over $US4 billion in paper.
While that might help Bank of America save its original $US2 billion investment (which had become $US1.3 billion and falling, there are signs t
