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Sun 26 Oct 2008 12:20 PM

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Merrill good long-term investment - Thain

CEO moves to calm concerns in Kuwait that gov't lost money from investment in US bank.

Merrill Lynch chief executive John Thain has moved to calm concerns within Kuwait that the government has lost money from its investment in the US bank earlier in the year.

Speaking in Kuwait during a tour of the Gulf, Thain said the $2 billion cash injection by the state-owned Kuwait Investment Authority (KIA) back in January will be very profitable in the long-term, Kuwaiti daily Arab Times reported on Sunday.

"In the long term the investment in Merrill Lynch will be very profitable for the authority. KIA’s investment will continue as the merger with the Bank of America is completed, and the authority will be shareholders of the bank that combine Bank of America and Merrill Lynch," Thain said on Thursday.

Merrill shareholders have voiced concerns their stakes will be diluted after the company’s $50 billion takeover by Bank of America last month.

The Kuwait government has also come under pressure from deputies of the Gulf state's parliament because US bank stocks it has invested in have tanked since the beginning of the year due to the US financial crisis.

The KIA in January invested $5 billion in Merrill Lynch and Citigroup to help recapitalise the banks, which were forced to write down billions of dollar due to the subprime mortgage crisis.

KIA managing director Bader Al-Saad said last month the sovereign wealth fund has not made a loss from its investment in Merrill, but has lost around $270 million from its investment in Ctigroup.

Thain, who will head up Bank of America’s new investment banking and wealth management division, also warned the US will slide into recession, raising fears of a protracted global slump.

He said further credit deterioration in the US was a possibility, but the Middle East will escape the brunt of the world financial crisis.

"The US economy has been contracting rapidly, and there is almost certainly going to be a recession in the United States and the rest of the world will be impacted by it to some extent,” Thain said.

“So the concerns in the market now are not about the financial system, but it’s about how deep will the US recession be and how long it will last. And those will be the questions that will need to be answered,” he added.

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