The US investment house Merrill Lynch, which operates a large wealth management arm, said it will sell $8.5 billion of stock and liquidate $30.6 billion of bonds at a fifth of their face value to bolster its credit ratings.

Temasek Holdings, the Singapore-owned fund that is the biggest investor in Merrill Lynch, will buy $3.4 billion of the new stock, the US firm said in a statement.

Merrill said it will also book $5.7 billion of write-downs in the third quarter.

Standard & Poor's, the rating agency, cut the Merrill’s debt rating last month and hinted that more downgrades were possible.

Merrill said it agreed to sell $30.6 billion of collateralised debt obligations for $6.7 billion. The buyer is an affiliate of Lone Star Funds, a Dallas-based investment manager.

"Our consistent focus has been to opportunistically reduce risk, and in order to take advantage of this sizeable sale on an accelerated basis, we have decided to further enhance our capital position,'' John Thain, chief executive, said in the statement.

As a result of the share sale and other planned moves, Merrill is joining a growing list of banks around the world that have held rights issues, bond sales and made other capital-raising plans to bolster their financial strength in recent months.