John Thain and his executive team, it is claimed, didn't enjoy much festive cheer this Christmas and New Year. According to The Observer, Thain cancelled leave for his top executives as the firm desperately attempts to shore up its under-pressure balance sheet by raising additional capital.

Merrill wrote down $8.4bn in mostly subprime lending-related assets in the third-quarter, and speculation is mounting that the firm faces additional write-downs of up to $15bn for the fourth-quarter (Merrill is due to announce its fourth-quarter earnings later this month).

Despite selling $6.2bn in shares to Singapore's Temasek and asset manager Davis Selected Advisers, and freeing up $1.3bn of capital by selling Chicago-based Merrill Lynch Capital to GE Capital just before Christmas, the newspaper says that Merrill is in the midst of a 'desperate bid' to raise as much as another $7.5bn.

The Observer quotes unnamed sources who say that 'Thain is desperately seeking an additional infusion of foreign capital to bolster Merrill's balance sheet. It could be done by selling shares or other assets to raise cash', and 'the multi-billion cash injection from Temasek was not enough, and Thain is taking calls from a host of other potential saviours, which are understood to include sovereign fund investors from the Gulf and China'. The newspaper also quotes an insider who said that 'it is all hands to the pumps here', adding that 'everything is on the table', including exploring the possibility of a merger with another firm. (The supreme irony here, of course, is that the final nail in the coffin of former Merrill CEO Stan O'Neal, who left a few weeks back, was that so-called 'unauthorised' telephone call to his opposite number over at Wachovia, in which he is alleged to have put out feelers about a possible merger between the two firms. Some say that Merrill might not have looked so desperate now if the firm's board had backed O'Neal and his plan then, instead of asking him to step down).

Merrill Lynch staff are bracing themselves for further job cuts, many thought likely to come in fixed income. CNBC reported last week that an additional 1,600 jobs globally are likely to go in the New Year, in all units except M&A and private clients.

Finally, Reuters reports that Sanford C. Bernstein analyst Howard Mason has said that Wachovia may face a fourth-quarter earnings 'wipe out', as the firm is expected to write-down another $1.5bn is mortgage-related assets.

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