From the Wall Street Journal:
Citigroup Inc., bruised by mounting losses, is bailing out seven affiliated investment entities, bringing $49 billion in assets onto its balance sheet and further denting its depleted capital base.
The big New York bank said it would provide emergency support to the entities -- known as structured-investment vehicles -- if it can't find buyers for their short- and medium-term debt. SIVs, which often hold mortgage-backed securities, have come under intense scrutiny in the past several months as nervous investors have balked at buying the short-term debt known as commercial paper that provides critical funding to the vehicles.
While Citigroup's action may ease uncertainty about the future of its SIVs, it may be the death knell for an industrywide effort to create a rescue fund for the struggling vehicles....MORE
From the New York Times:
Citigroup to Assume Control of SIVs
Citigroup Inc. plans to assume control of the seven ''structured investment vehicles'' the bank advises to help them repay their debts.
Citigroup will provide a ''support facility'' for its seven SIVs with investments totaling $49 billion and incorporate them onto its balance sheet, the bank said Thursday. The bank previously said it had no plans to bring the SIVs onto its books....MORE
From FT Alphaville:
Citi and the SIVs
Now is the moment for dramatic U-turns. New management can come off as decisive men of action if they make their strategic volte-faces quickly. Leave it too long though and you risk looking as though you arrived in the job green and witless with precious little notion of how to address the task at hand.
Barely 24 hours into the job, Citi’s new chief executive Vikram Pandit made the call: “After considering a full range of funding options, this commitment is the best outcome for Citi and the SIVs.”
The bank has done a decent job of pruning the burden to which it is now exposing itself. The seven SIVs have been slashed from $87bn back in August to $49bn. Felix Salmon at the Market Movers blog notes that $17bn of that reduction seems to have been made in the past few days.
The bank said it expects “orderly asset reductions” to be sufficient to meet the vehicles’ funding requirements through to the end of next year, about $35bn. So they don’t expect, or so they claim, the support facility they’re putting behind the SIVs to be needed.
The move is necessitated by the threat of downgrades of the SIVs senior debt by the rating agencies. The Citi SIVs have arguably only survived this long because they had covenants built around ratings triggers, rather than NAV-based ones - but a downgrade of the SIVs senior debt would trigger mandatory liquidation and ensuing asset firesales....MORE