John Thain, the new chief executive of Merrill Lynch, has raised $7.5 billion (£3.7 billion) in cash to shore up the investment bank’s damaged finances by selling part of its lending business and a stake in the bank at a substantial discount.

Merrill said on Christmas Eve that it would sell a stake worth just under 10 per cent for $6.2 billion to two investors – Temasek Holdings, the Singaporean state-run fund, and Davis Selected Advisors, an American fund manager. The bank said that it had also sold part of its lending business to GE Capital, the two deals freeing up $1.3 billion of capital. Temasek and Davis bought Merrill stock at $48 per share, representing a 13.6 per cent discount to the closing price on Friday.

While Merrill refused to disclose the price paid for part of its lending business, it said in its statement that it had sold more than $10 billion of assets and $5 billion of commitments.

GE Capital will buy Merrill Lynch Capital’s corporate finance, equipment finance, franchise, energy and healthcare finance units.

In the statement, Mr Thain said: “One of my priorities was to strengthen the balance sheet, and today we have made great progress towards that by bolstering our capital position through these investments and our sale of Merrill Lynch Capital.” Under the terms of the deal, Temasek will buy ordinary shares worth $4.4 billion and retain an option to buy another $600 million by March. Davis Selected is to inject $1.2 billion.

The bank insisted that the combined stake of the new investors would not exceed 10 per cent, that the holding would not allow them to “have any rights of control” and that they “would have no role in the governance of Merrill Lynch”.

Merrill said that both investors were passive, suggesting that they may back the potential disposal of the bank’s 49 per cent stake in BlackRock, the asset manager, if the bank’s capital reserves decline further. In addition to the stake in BlackRock, which is worth about $12 billion, Merrill owns 20 per cent of Bloomberg, the financial data group, a holding that could be worth $4 billion.

The Singaporean deal marks the latest in a series of transactions in which sovereign funds have taken substantial stakes in Wall Street banks, which are nursing heavy losses from their investments in sub-prime mortgage debt. Citigroup, Morgan Stanley, UBS and Bear Stearns have sold stakes in their companies to funds controlled by Asian and Middle Eastern governments.

Merrill Lynch’s need for a cash injection rose substantially this month as it became clear that the rise in sub-prime-related investment writedowns recorded by many Wall Street firms in the third quarter will be at least as high in the fourth quarter and could continue well into next year. Merrill Lynch declared the biggest quarterly loss, of $2.24 billion, in the third quarter as it took an $8.4 billion writedown that led to the ousting of Stan O’Neal, the chief executive.

Merrill Lynch declined to comment beyond its published statement. Shares in the bank slipped 3 per cent on Wall Street on Monday, which closed at lunchtime ahead of the Christmas holiday. The Merrill cash injection did help the stock market overall, with the Dow Jones industrial average closing up almost 100 points.

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