SIV liquidity problems: The next wave looms

Another reason to strenghten the balance sheets or we soon will see more news like this or this Santa Claude at the ECB. It looks like Santa Claude will have to return more than once a year.....

Ein weiterer Grund um die Bilanzen so schnell wie möglich zu stärken oder wir werden un s bald an Meldungen wie diese und diese Santa Claude at the ECB gewöhnen müssen. Santa Claude wird wohl demnächst öfter als einmal jährlich erscheinen müsen.....

FT Alphaville Funding problems for the structured investment vehicles at the heart of this year’s liquidity troubles are far from over, despite the move by a number of banks to step in to support their vehicles, reports the FT’s Paul Davies on Tuesday.

January will bring the start of a second wave of liquidity problems for SIVs as the vast majority of medium-term funding starts to come due for repayment, according to a report from Dresdner Kleinwort analysts to be published on Wednesday.

SIVs rely on cheap, short-term debt to fund investments in longer-term, higher-yielding securities. This cheap debt has come from both the very short-term commercial paper markets and from the slightly longer maturity, medium-term note (MTN) markets. CP funding has long dried up and much of what was sold has matured.

So far, SIVs have primarily felt the impact of collapsed CP issuance, Domenico Picone at DrK told the FT. Outstanding MTN for the 30 SIVs currently stands at $181bn, which will be the next liquidity challenge they face, he added.

This represents almost 65 per cent of the value of the SIV sector in mid-October, and it is likely that SIVs have shrunk a great deal more since then.

According to the DrK analysts’ calculations, two-thirds of all MTN funding for SIVs comes due for repayment by the end of next September. Almost $40bn is to be repaid from January to March alone.

> Yves from Naked Capitalism nails it

No wonder banks are hoarding cash.....