Citigroup Rescues SIVs With $58 Billion Debt; Ratings Get Cut

Finally...... This is for sure the end of the Superfund. But it will be hard even for the spin-masters from Wall Street to spin this as a sign of strength. But they will try hard for sure....... When you view news like this it should be clear that it maybe just took too long to implement the superfund. Another motivation is that the market could stigmatized the participation when other banks are able to consolidate their SIV´s on their balance sheet. Next step will to cut or eliminate the dividend.... Overall i think this are good news.

Endlich........Das ist mit Sicherheit das Ende der von Anfang an wahnwitzigen Idee des sog. Superfonds. Es dürfte selbst den Spinerprobten von Wall Street schwerfallen das als ein Zeichen der Stärke hinzustellen. Auch wenn das heute sicher krampfhaft probiert werden wird.....Nach Meldungen wie diesen sieht es vielmehr danach aus als wenn der Citigroup einfach die Zeit davon gelaufen ist. Eine weiter Motivation ist sicherlich auch das jede Partizipation mit einem Makel versehen wäre. Wie sonst soll die Citigroup erklären das es die Bilanzen anderen Banken erlauben die Risiken zu schultern und Sie selber anscheinend nicht dazu in der Lage sind. Nächster längst überfälliger Schritt dürfte die Streichung oder Kürzung der Dividende sein.... Insgesamt sicher gute News um die Verunsicherung etwas zu mindern


Dec. 14 (Bloomberg ) -- Citigroup Inc. will take over seven troubled investment funds and assume $58 billion of debt to avoid forced asset sales that would further erode confidence in capital markets. Moody's Investors Service lowered the bank's credit ratings.

The biggest U.S. bank by assets will rescue the so-called structured investment vehicles, or SIVs, taking responsibility for their $49 billion of assets, the New York-based company said in a statement late yesterday.

Citigroup follows HSBC, Societe Generale SA and West LB in bailing out SIVs to avert fire sales of assets. The funds, which sell short-term debt and invest the proceeds in higher-yielding securities, cut their holdings by more than 25 percent since August to $298 billion, according to Moody's. The decline may reduce the urgency for a bailout sponsored by the U.S. Treasury, Citigroup, Bank of America Corp. and JPMorgan Chase & Co.

``That was really the last major outstanding piece of the SIV problem,'' said Peter Crane, founder of Crane Data LLC, the Westborough, Massachusetts-based publisher of Money Fund Intelligence. ``The SIV problem is very close to resolution.''

Moody's lowered Citigroup's credit rating to Aa3, the fourth-highest level, from Aa2 late yesterday. The bank will probably ``take sizable writedowns'' for securities backed by home mortgages and collateralized debt obligations, Moody's Senior Vice President Sean Jones said in a statement.

``Citigroup's weak earnings should prohibit the bank from rapidly restoring weak capital ratios,'' which may lead to further downgrades, Jones said.

Biggest Threats
SIVs emerged in August as one of the biggest threats to capital markets that were rocked by record high defaults on subprime mortgages. Financial institutions have since reported more than $70 billion of losses and writedowns. Citigroup invented SIVs in 1998 and was the biggest manager of the funds.

The average net asset values of SIVs tumbled to 55 percent from 71 percent a month ago and 102 percent in June, according to Moody's. The net asset value is the amount that would be left for investors if a fund had to sell holdings and repay debt. Moody's said Nov. 30 that it may cut the credit ratings on $105 billion of SIV debt.

Concerns about asset values contributed to the sudden increase in corporate borrowing costs by driving investors away from all but the safest government bonds. The amount of U.S. asset-backed commercial paper that SIVs rely on to finance investments fell about 34 percent since August, to $791 billion this week, the lowest since October 2005, the Federal Reserve in Washington said yesterday.

The decision to bring the SIVs onto the balance sheet marks a turnaround for Citigroup. In a Nov. 5 regulatory filing, the company said it ``will not take actions that will require the company to consolidate the SIVs.''

Wiping Away Sins
``After considering a full range of funding options, this commitment is the best outcome for Citi and the SIVs,'' Vikram Pandit, who was named chief executive officer on Dec. 11, said in the statement.

Citigroup has reduced the assets of the SIVs from $87 billion in August. Last month, the company provided $7.6 billion of financing after the SIVs were unable to repay maturing debt. The disclosure in a filing with the U.S. Securities and Exchange Commission came a day after the company announced as much as $11 billion of writedowns on debt linked to subprime mortgages and the resignation of Chief Executive Officer Charles O. ``Chuck'' Prince III.

Sixty percent of the assets in Citigroup's SIVs are debt owed by financial institutions. Another 13 percent is in mortgage-backed bonds and collateralized debt obligations, which are securities created by packaging bonds and loans. The company said 54 percent have Aaa ratings by Moody's and 43 percent are ranked Aa. The rest is rated A.

The debt Citigroup is assuming consists of $10 billion in commercial paper that matures in an average of 2.4 months. The other $48 billion is in medium-term notes that come due in 10.1 months on average.
Tier 1 Capital
Citigroup didn't give details of how it will finance the assets other than to say it will provide a ``support facility'' that will be in place early next year.

Taking on the SIV assets will reduce the capital ratio that regulators monitor to gauge the bank's ability to withstand losses on bad loans. The so-called Tier 1 ratio will drop by 0.16 percentage point from 7.32 percent as of Sept. 30, according to the company's statement. Citigroup expects the ratio to return to its target level of 7.5 percent by the end of the second quarter of 2008.

Citigroup got a $7.5 billion cash infusion last month by selling a 4.9 percent stake to the ruling family of Abu Dhabi after the bank's capital ratio fell below the company's target.

CIBC World Markets analyst Meredith Whitney says the bank still needs to raise $30 billion more, and may have to cut its dividend.

WestLB, HSH Nordbank Bail Out $15 Billion of SIVs

Bring on the next state owned bailout.... At least West LB is gettig very close to some kind of bailout. HSH is doing much much better. Both HSH and West LB are in different ways owned through several state or municipal entities. Only 26 percent from HSH was sold last years to J.C. Flowers, a private equity firm. It is getting better. Düsseldorf seems to be the capital of incompetence in Germany. Düsseldorf is the headquarter from West LB & IKB which got a $ 7 billion ( and still counting) bailout earlier this year . I´ll bet that at the next carnival they will have something banking related on their trucks......

Der nächste bitte.......Bei der West LB ist wohl in ganz naher Zukunft in irgendeiner Weise "externe" Hilfe notwendig. Die HSH dürfte das locker wegstecken können. Sowohl die HSH Nordbank als auch die West LB haben mit Ausnahme von 26% der HSH in Weise direkte bzw indirekte ( Sparkassen) staatliche Eigentümer. Sieht ganz so aus als wenn Düsseldorf sich zur Hauptstadt der Inkompetenz in Sachen Banken gemausert hat. Neben der West LB hat auch die IKB ( biher $ 7 Mrd Bailout ...) Ihren Sitz in Düsseldorf. Ich tippe mal das beim nächsten Karnevalsumzug zumindest ein Wagen das Thema aufgreifen wird.....


WestLB, HSH Nordbank Bail Out $15 Billion of SIVs Bloomberg
WestLB AG, Germany's third-largest state-owned bank, and Hamburg-based HSH Nordbank AG provided financing to more than $15 billion of troubled investment funds to prevent a fire sale of their assets.

WestLB provided a credit line for its $11 billion structured investment vehicle called Harrier Finance to repay commercial paper, the Dusseldorf-based bank said in an e-mailed statement today. HSH Nordbank said it will provide backup funding to cover all commercial paper issued by its 3.3 billion- euro ($4.8 billion) Carrera Capital SIV, spokesman Reinhard Schmid said in an interview.

NYT
FRANKFURT, Dec. 3 — In an effort to limit fallout from the subprime lending crisis in the United States, the German bank WestLB said on Monday that it would guarantee full liquidity to several of its investment vehicles that had put money into asset-backed securities.

WestLB, based in Düsseldorf and one of the regional German banks, or Landesbanken, has two major programs, known as Harrier Finance Funding and Kestrel Funding, that borrow money by selling short-term commercial paper to investors. They then invest the proceeds in higher-yielding securities, including ones backed by American mortgages.

WestLB also has three other similar investment vehicles, known as conduits. All five will have the option of drawing up to 25 billion euros, or $36.6 billion, as the short-term paper comes due.

> Put this gigantic figure in comparison with the numbers from the balance sheet...... No wonder Libor rates are surging around the globe.....

> Nun setzt diese Wahnsinnssummen ins Verhältnis zur den Bilanzdaten....... Kein Wunder das sich Bänker untereinander nicht traeun und den Libor in die Stratosphäre schiessen lassen.....

“This will ensure that there is no compelled liquidation of the assets in the SIVs,” said Armin Kloss, a WestLB spokesman, referring to structured investment vehicles. “We are also convinced that the assets that Kestrel and Harrier have could be more highly valued, but that the market is not ready for that.”

WestLB said in August that “less than 5 percent” of its investments was subprime-related, Mr. Kloss said. But trading in asset-backed securities has largely stopped, so a forced sale now would cost the bank dearly.

Like other banks and many politicians, WestLB is betting that the market will recover.

I suggest to read this from FT Alphaville related to the NAVRevenge of the SIV: still going down

Ich empfehle zu diesem Thema Revenge of the SIV: still going down vi FT Alphaville zu lesen.

HSH Nordbank, based in Hamburg, is taking a similar step to that of WestLB, covering all of the 3.3 billion euros that its vehicle, called Carrera Capital, has issued. The step has helped secure its stable credit ratings with Moody’s Investor Service and Standard & Poor’s.

“What we’re trying to do is avoid a write-down,” Reinhard Schmid, an HSH Nordbank spokesman, said. “We can do that with liquidity.”

Two German banks, IKB Deutsche Industriebank and Landesbank Sachsen, needed an outside rescue in August when their speculation in subprime-related securities went awry. But those problems far outstripped what much more stable banks like WestLB and HSH Nordbank are facing. IKB Deutsche and SachsenLB set up funds that were triple or quintuple the size of their capital on hand.

> I wouldn´t call West LB "stable".....

> Mir würde das Wort "stabil" im Zusammenhang mit der West LB nicht über die Lippen kommen.....

The British bank HSBC said last week that it would spend $35 billion to bring two vehicles it ran directly onto its books, effectively turning the bank into their guarantor of liquidity.

A similar principle underlies the so-"Superfund"— formally known as the Master Liquidity Enhancement Conduit — proposed by Citigroup, the largest sponsor of such vehicles in the world. Together with Bank of America and JPMorgan Chase, Citigroup is proposing that up to $80 billion be devoted to buying up mortgage-backed securities and holding them until the market relaxes.

Moody's Takes Ratings Action on Six of Citigroup's Seven SIVs

It will be interesting to see if the fire sale to Abu Dhabi will be enough. With all capital ratios plunging and downgrades coming fast and furious i have some serious doubts.... But as long they can pay their dividend and they remain their creativity as shown in No Kidding.... More Off Balance Sheet Vehicles For Citigroup everything is fine....Lets hope for them that this kind of deal won´t backfire like the famous "Liquidity Puts" .... I highly recommend to see this video with the analyst Meredith Whitney and hear her latest thoughts on Citigroup!

Es wird interessant zu sehen sein ob die Notoperation mit Hilfe von Abu Dhabi ausreichen wird. Da momentan alle Kapitalparameter im freien Fall sind und die Downgrades praktisch täglich eintreffen habe ich da so meine leichten Zweifel....Immerhin wollen sie weiter fleißig eine Dividende ausschütten und sind kreativ wie gewohnt wenn es darum geht die Bilanzen zu frisieren ( sieheNo Kidding.... More Off Balance Sheet Vehicles For Citigroup ) . Bleibt zu hoffen das diese Art an Konstruktion nicht wie die "Liquidity Puts" übelst zurückschlägt...... Zudem empfehle ich dringend sich das Video von der Analystin Meredith Whitney die vor einer Woche die große Krise bei Citi ausgelöst hat anzusehen. Es gibt doch noch Hoffnung das nicht alle Analysten vollkommen verblöded sind.

Dec. 1 (Bloomberg) -- Moody's Investors Service may cut the top ratings on six of Citigroup Inc.'s seven structured investment vehicles as part of a review of $130 billion in SIV debt.

The net asset value of the $64.9 billion in Citigroup SIVs dropped to below or near 60 percent, prompting the ratings action, Moody's said in a statement yesterday. The junior notes of three of the funds have been downgraded to below investment grade.

> What a difference afew weeks made....Compare this action with the Fact Sheet Citi-Advised Structured Investment Vehicles (SIVs) from mid October

> Was für ein Unterschied doch ein paar Wochen ausmachen.....Vergleicht das mit den Aussagen von Mitte Oktober Fact Sheet Citi-Advised Structured Investment Vehicles (SIVs)

• The assets are of very high quality.
  


• The SIVs have no direct exposure to U.S. sub-prime assets.
  


• The SIVs have approximately $70 million of indirect exposure to sub-prime assets through securities such as collateralized debt obligations. Those securities are AAA-rated and carry credit enhancements.
  


• All assets are rated "A" or above; 80% - 90% are rated "AA" or
  above; approximately 50% are rated "AAA"

SIVs, which sell short-term debt to buy longer-term, higher-yielding assets, were shut out of the short-term market as losses on subprime mortgage securities prompted investors to retreat from all but the safest of securities. Unable to finance themselves, three SIVs have defaulted and others are being bailed out by their sponsors. The world's 30 SIVs have more than $300 billion of assets.

``In recent weeks, Moody's has observed material declines in market value across most asset classes in SIV portfolios,'' the ratings company said in the statement.

Moody's said it surveyed 20 SIVs since Nov. 7 and expanded its review after noticing ``significant additional deterioration'' in asset values.

Moody's cut $14 billion in debt in all, mostly capital notes that rank below commercial paper and medium-term notes and are usually the first to absorb losses, Henry Tabe, managing director in charge of structured finance, said in a telephone interview. The ratings company placed $105 billion of debt on review for a downgrade and confirmed the ratings on $11 billion, Tabe said.

Links Finance Corp., a SIV sponsored by Bank of Montreal with $19.1 billion of debt, also had its junior notes cut and may have the remainder downgraded, Moody's said.

`Continued Deterioration'
SIV assets on average are 38 percent financial institution debt, 16 percent asset-backed securities and 12 percent collateralized debt obligations, Moody's said.

The downgrades are ``a reflection of the continued deterioration in market value of SIV portfolios combined with the sector's inability to refinance maturing liabilities,'' Moody's said. Net asset values have slumped to 55 percent from 102 percent in June, Moody's said, including the NAVs of the three defaulted SIVs.

Citigroup, the largest U.S. bank by assets, provided $7.6 billion of emergency financing to the seven SIVs it runs earlier this month after they were unable to repay maturing debt.

Citigroup, based in New York, created the first SIV in 1988 and is the largest manager.

The SIVs' struggle for survival, and the threat of having their assets dumped on the market, prompted Treasury Secretary Henry Paulson to broker talks with Citigroup, JPMorgan Chase & Co. and Bank of America Corp. to form an $80 billion "Superfund" to help bail them out.
Centauri, Beta
HSBC this week said it will take on $45 billion of assets from the two SIVs it manages after they were unable to finance themselves. SIVs set up by Dusseldorf- based lenderIKB and London-based Cheyne Capital Management Ltd. defaulted last month after investors stopped buying their asset-backed commercial paper.

Citigroup said in a Nov. 5 regulatory filing that it ``will not take actions that will require the company to consolidate the SIVs.'' The strategy ``remains unchanged from the disclosures in the third quarter'' filing, spokesman Jon Diat said yesterday in an e-mail statement. ``We continue to focus on liquidity and reducing leverage,'' Diat said. Citigroup's SIV assets have dropped to $66 billion from $83 billion on Sept. 30, Diat said.


Centauri Corp., the largest SIV run by Citigroup with $16.9 billion of debt, had its P1 commercial paper rating placed on review for downgrade as well as its AAA medium-term note program, Moody's said. Centauri's net asset value dropped to 60 percent from 85 percent since Sept. 5, Moody's said.

Beta Finance Corp., the second-largest Citigroup SIV with $16 billion of debt, had its senior debt ratings placed on review for downgrade after its net asset value declined to 60 percent from 87 percent, Moody's said.

Sedna, Dorada
Four other Citigroup SIVs, Sedna Finance Corp., with $10.7 billion of debt, Five Finance Corp., with $10.3 billion, Dorada Corp. with $8.5 billion, and Zela Finance Corp., with $2.5 billion, had their P1 commercial paper rating and AAA medium- term note programs placed on review, Moody's said.

Sedna's net asset value dropped to 56 percent, Five's declined to 63 percent, Dorada dropped to 62 percent and Zela's fell to 61 percent. A seventh Citigroup SIV, Vetra Finance Corp., wasn't part of the review.

The capital notes of Dorada, Beta and Centauri were reduced 11 levels to Caa3 from Baa1.

Fire Sale At Citigroup...Citigroup to Get $7.5 Billion Infusion From Abu Dhabi

When you have to increase your capital with your share price at multi year lows you know that they don´t do it for charity reasons...... Nice dilution but probably the only way to stay solvent..... Now it should be clear why they are still pushing for the "Superfund" . They are simply not able to follow HSBC. I assume this time there will be no congressional hearing related to sovereign wealth funds.......Nice to see that some "experts" still focusses on the dividend.... ;-). I assume this time even FOX Business News will get it right...... :-)

Kein gutes Zeichen wenn man sichn neues Geld zu Zeiten besorgen muß wenn die Aktien auf Mehrjahrestiefs notiert. Auf gut deutsch "Denen steht das Wasser bis zum Hals". Schöne Verwässerung für die Altaktionäre aber wohl die einzige Möglichkeit solvent zu bleiben. Nun sollte auch dem letzten klar werden warum Citigroup auf Biegen und Brechen den "Superfund" pusht und nicht wie HSBC diese Gesellschaften wieder in die Bilanz aufnimmt. Ich denke das es diesesmal kein Störfeuer von der US Politik geben wird....Besonders lustig zu sehen das einige der Experten sich immer noch mit der Dividende befassen..... Ich denke diesesmal wird sogar FOX Business News richtig berichten.... :-)

Nov. 26 (Bloomberg) -- Citigroup Inc., the U.S. bank searching for a new chief executive as it faces at least $8 billion of writedowns, agreed to sell as much as 4.9 percent of the company to the government of Abu Dhabi for $7.5 billion.


Citigroup will sell equity units to the Abu Dhabi Investment Authority that convert into common shares, the New York-based lender said today in a press release.

``This investment, from one of the world's leading and most sophisticated equity investors, provides further capital to allow Citi to pursue attractive opportunities to grow its business,'' Win Bischoff, Citigroup's acting CEO, said in the statement. It helps ``strengthen our capital base,'' he said.

> It´s about time..... Wird aber auch dringend Zeit.......

Charles O. Prince III ( deaf & ingorant CEO Prince ) was forced to step down as Citigroup's chief executive officer Nov. 4 after the biggest U.S. bank said losses on subprime mortgages and related securities may cut fourth-quarter net income by $5 billion to $7 billion. The lender said at the time that it planned to shore up capital. The company's shares, which have fallen about 44 percent this year, sank to $30.70 in New York Stock Exchange composite trading today, the lowest price in five years.

Time for a review of the buybacks in 2006 Financial Highlights 2006 pdf

....our return of cash to shareholders through our $7 billion stock buyback in 2006 ( Stock was between $ 45 and $ 55....)

> Well done! Eine Meisterleistung!

ADIA, the sovereign wealth fund of the government of Abu Dhabi, is buying equity units that convert into Citigroup shares at prices ranging from $31.83 to $37.24 per share, on dates ranging from March 15, 2010, to Sept. 15, 2011, the U.S. bank said. The units will pay 11 percent annual interest.

> Here is a more detailed look via the FT Junk Citi

Citi is paying a higher interest rate than companies that borrow on the high-yield, or junk-bond, market; currently they pay roughly 9% for straight bonds. Typically, convertible bonds pay lower interest rates than straight bonds, although a particular bond’s structure could affect the interest rate paid......

Even after the spurious tax argument, it is difficult to see how this funding can be costing much less than 9 per cent.

Abu Dhabi, one of the United Arab Emirates, will have ``no role in the management or governance of Citi, including no right to designate a member'' of the company's board, according to the statement.

FT Alphaville has some more thought on The stealthy rise of the sovereign wealth fund

Von FT Alphaville gibt es ein paar mehr Gedanken zum The stealthy rise of the sovereign wealth fund

More insights from Mish , Naked Capitalism and the "Peter Schiff" of bank analysts Meredith Whitney

HSBC Will Take on $45 Billion of Assets From Two SIVs

Finally .......If you take this event one step further you might ask why Citi & Co are not able to do the same and Paulson & Co is tring desperately to help and create the "Superfund"...... Maybe it has something to do with the strenth of their balance sheets...... UPDATE: Fire Sale At Citigroup...Citigroup to Get $7.5 Billion Infusion From Abu Dhabi

Endlich...... Im Umkehrschluß sollte man sich sehr wohl fragen warum Citi & Co es der HSBC nicht gleichtun und warum Paulson & Co so verzweifelt versucht den "Superfund" ins leben zu rufen....... Das liegt sicher nicht an den "starken" Bilanzstrukturen....... UPDATE: Fire Sale At Citigroup...Citigroup to Get $7.5 Billion Infusion From Abu Dhabi

Nov. 26 (Bloomberg) -- HSBC Holdings Plc, Europe's largest bank, will add $45 billion of assets to its balance sheet by consolidating two structured investment vehicles it manages.

The bank doesn't expect any ``material impact'' on its earnings or capital strength, it said today in a Regulatory News Service statement.

HSBC's decision comes as U.S. lenders led by Bank of America Corp. seek to persuade competitors to help finance an $80 billion bailout of other SIVs, companies that borrow short-term to invest in higher-yielding assets. HSBC will give investors in Cullinan Finance Ltd. and Asscher Finance Ltd. the chance to swap their holdings for securities issued by a new company, backed by loans from the London-based bank.

``HSBC's actions will set a benchmark and restore a degree of confidence to the SIV sector, while providing a specific solution to address the challenges faced by investors in Cullinan and Asscher,'' Stuart Gulliver, HSBC's chief executive officer of corporate and investment banking in London, said in the statement.

SIVs borrow in the $836 billion asset-backed commercial paper market to buy longer-dated debt including bank bonds, mortgage-backed securities and collateralized debt obligations. Investors are shunning SIVs because the holdings are difficult to value now that trading has collapsed in some mortgage debt markets. That's stoking concern SIVs will sell assets at distressed prices, adding to turmoil in credit markets.

FT Alphaville The other problem is that declines in asset values have left these vehicles facing NAV or market value triggers that would put them into a restricted state of operation.

The latter seems to be the more immediate problem for HSBC. The bank says that both its SIVs are funded beyond the end of the year, with Asscher funded to April 2008.

In terms of their asset value, Asscher, back at launch in January, was intended to have about about 10 percent of its portfolio invested in triple-A cash CDOs, with about 40 percent in residential mortgage-backed securities. Not a great place to be.

Other SIVs have been hamstrung by declining NAVs. But, as we noted earlier this month, HSBC has kept its portfolio tests under wraps

Bank of America Takes Lead in Backing `SuperSIV' Fund The ``SuperSIV'' fund, backed by U.S. Treasury Secretary Henry Paulson, would buy assets from so-called structured investment vehicles, whose $300 billion of holdings include corporate and mortgage debt in danger of default.

Bank of America, Citigroup and JPMorgan, the three largest U.S. banks, want SuperSIV in place by year-end because some SIVs haven't been able to trade, people familiar with the fund said. BlackRock Inc., the biggest publicly traded U.S. money manager, probably will manage the fund, said a person with knowledge of the plan.

Loomis Sayles & Co. declined to invest after receiving one of 16 invitations for a personal meeting last week with current Fed Chairman Ben Bernanke, said Daniel Fuss, who oversees $22 billion as chief investment officer at the Boston-based firm.

``It's so nice to get a personal invitation to go to Washington and have a one-hour visit with Ben Bernanke,'' said Fuss, who decided participating wasn't worth the risk to his firm. ``Oh, boy, did I feel important for about 27 seconds, and then you smell a rat.''

BRAVO :-)

Risk rises of asset fire sale; signs ‘superfund’ has stalled

Some might argue that these are market and not fire sale prices......... But as long as they can convince the rating agencies and the auditors that their "models" imply a higher price.......

Einige könnten argumentieren das diese Preise dann Marktpreise und keine Schleuderpreise sind.... Aber solange es möglich ist die Rating Agenturen und die Buchprüfer davon zu überzeigen das die hauseigenen Modelle einen höheren Wert ergeben.......

Risk rises of asset fire sale; signs ‘superfund’ has stalled / FT
The threat of fire sales of mortgage-backed securities is mounting as rating agency downgrades have pushed debt vehicles into technical default. The prospect of forced sales comes as a US Treasury-backed plan for a “superfund” to buy up distressed mortgage securities appears to have stalled. S&P and Moody’s have received default notices for $5bn worth of CDOs, giving investors in senior tranches the right to sell assets.

The $75bn superfund plan - designed to purchase assets from distressed investments linked to banks and so prevent fire sales - seems to be stalled following the upheaval at Citigroup.

House Of Cards Fixed......

Maybe Bernanke, Paulson, King, Trichet, Mozillo, Prince, O´Neal & Co should hire this guy to fix some of the problems or at least to manage the Master Liquidity Enhancement Conduit ......

Evtl. sollten Bernanke, Paulson, King, Trichet, Mozillo, Prince, Ackermann & Co diesen Typen anheuern um die dringensten Probleme zu beheben oder zumindest den geplanten Master Liquidity Enhancement Conduit zu managen.....



Besten Dank an Zeitenwende

But i think even this guy could only help to delay the unavoidable for a few more quarters.....

Aber ich befürchte das selbst dieser Typ das Unvermeidliche wohl nur noch ein paar Quartale verzögern kann....

NAV SIVs

No wonder Paulson & Co are working overtime.......

Kein Wunder das Paulson & Co momentan sehr beschäftigt sind........

FT The point of M-LEC
Since SIVs were last in the limelight, things have not improved. In fact, asset prices in SIVs have continued to slide. Take a look at this graph, published by Fitch ratings in a note to clients:

Net Asset Value, or NAV, is a measure of the amount by which the market value of a SIVs portfolio exceeds the senior debt, divided by the capital - in other words, a measure of a SIVs underlying worth after leverage.

Not only does Fitch’s graph highlight that SIV’s fortunes have steadily worsened, it also points to a growing divide. Some SIVs are in a far worse NAV situation than others. Axon Financial, managed by TPC-Axon Capital Management, has a NAV currently at 35-40 per cent. Compare to AbAcAs Investments, managed by EBI/NSM. Its net asset value (NAV) is at around 100-105 per cent.

Even if funding briefly loosened up after August, SIV NAVs are still clearly troubled.

Citi - the prime mover behind M-LEC, is a case in point. While the bank could last week declare it had funding for all its SIV CP for the next year, it couldn’t rest on its laurels: The 3 Citi SIVs Fitch rates (in total there are 7) have seen NAVs slide pretty much in line with Fitch’s graph. On September 6, Beta’s NAV was 85.3 per cent, Five’s NAV was 81.6 per cent and Sedna’s NAV was 81 per cent. One month later, on October 8, Fitch puts Beta at 75-80 per cent, Five at 70-75 per cent and Sedna at 75-80 per cent. A decline of up to 10 per cent.

>Mish is asking in Enron Accounting at Citigroup

If a fire sale of those SIVs and conduits resulted in a 25% loss, Citigroup would have net tangible assets of $25.5 billion. If a fire sale of SIVs and conduits resulted in a 41% loss in those SIVs and conduits, Citigroup would have zero net tangible assets.

M-LEC is not only about restoring confidence and making the market more transparent. It’s about restoring asset values.

> Hellasious from Sudden Debt has a related post that is also painting a very bleak picture

> Hellasious von Sudden Debt hat ebenfalls ein Post zu diesem Thema das wenig Linderung verspricht

Hat Tip Eh

Market Sentiment & SIVs Explained... :-)

This is a must see! Hilarious.

Sehr treffend! Fantastisch!



Hat tip to Calculated Risk

Cheyne SIV fails insolvency tests

I think lots of people are hoping that the ruling (see emphasized part of the post) won´t spread...... If you want to laugh or to shake your head in disbelief click here and read what S&P has to say about conduits and SIV just a few month ago.....

Ich kann mir sehr gut vorstellen das wohl einige den unterstrichenen Absatz basierend auf dem Richterspruch nicht sonderlich gerne sehen......Wenn Ihr ordentlich ablachen oder einfach nur fassungslos den Kopf schütteln wollt kann ich diesen Kommentar von S&P zum Thema "Conduits und SIV´s" empfehlen.....

Thanks to Jim Borgman

Cheyne Finance halts payment / FT
Cheyne Finance has become the first structured investment vehicle to stop repaying its short-term debt after the administrator of the troubled fund won court backing to declare it in breach of insolvency tests.


The move came as Cheyne Finance entered final negotiations with four banks bidding for its assets, which stood at $6.6bn (£3.2bn) at the start of last month.

The hold on repayments of the SIV’s commercial paper will hit short-term debt markets just as they had begun to show some signs of recovery from the ravages of the summer credit squeeze.

But Neville Kahn, a partner at Deloitte, the administrator, said the insolvency would not force it to sell assets at firesale prices and would make it easier to push through a sale.

“It will mean that we will get to a solution quicker,” he said. “We hope to have a recommended deal very shortly to communicate to creditors.”

The SIV still has $1.3bn of cash and could have continued to repay maturing commercial paper until at least the end of this month.

The administrator won backing from the High Court in a sealed judgment on Wednesday, said people present at the hearing.

However, the court’s interpretation of the insolvency test – using a balance sheet measure, in spite of the SIV’s cash pile – could prove controversial, as many SIVs would be insolvent if a similar measure was applied.

Mr Kahn refused to say which banks were bidding or at what prices, but said it was wrong to assume the holders of mezzanine debt – the lowest-rated tranche – would be wiped out.

That suggests holders of the top-rated commercial paper will be repaid in full, in spite of the insolvency.

Cheyne Finance, set up and managed by Cheyne Capital, the $12bn London hedge fund, is one of several vehicles either struggling to find new financial backers to support a restructuring or have triggered restrictions on their operations.

Two SIV-lites struggling to restructure have turned to Barclays for support, although Golden Key, set up by Swiss-run hedge fund Avendis, is in dispute with the bank about whether it has to repay a loan it drew down, reported to be worth $250m. Mainsail II, an SIV-lite run by London hedge fund Solent, had a rescue plan backed by Barclays turned down by investors.

In total, more than $42bn of assets in SIVs and SIV-lites are facing limits on their operations.

US banks take $280bn onto books

Despite all the orchestrated efforts around the globe from central banks, regulators, politicians etc. the party or orgy :-) is over. The cracks are so obvious that no matter what kind of "bailout" attempt will happen next the real economy will take a significant hit. The times of easy credit are over. I think the biggest fear now is that the creditors will overshoot to the other side. The fact that foreigners are less willing to finance US assets will intensify this trend. I also recommend the excellent piece from Brad Setser The US trade deficit is falling, but not as fast as the world’s demand for US debt.

Trotz der konzertierten weltweiten Aktionen von den Zentralbanken, Aufsichtsbehörden, Politikern etc sind die Zeichen nicht zu übersehen das die Party oder Orgie :-) zu Ende ist. Die Einschläge sind so massiv das ganz egal was noch an neuen "Bailout" Versuchen auf die Agenda kommt die reale Wirtschaft darunter zu leiden haben wird. Die Zeiten des einfachen Zugangs zum Kreditmarkt sind Geschichte. Die größte Sorge die momentan vorherrscht ist sicher das die Kreditgeber von einem Extrem ins andere wechseln und es den Zugang über Gebühr erschweren. Die Tatsache das ausgerechnet jetzt die Ausländer aufwachen und immer weniger US Anleihen erwerben wird diesen Trend nur noch verstärken. Zu diesem Thema solltet ihr ebenfalls die Meinung von Brad Setser lesen The US trade deficit is falling, but not as fast as the world’s demand for US debt.

Banks’ debts threaten growth / FT

Big US commercial banks have seen $280bn of new debt come on to their balance sheets since the credit squeeze, threatening to undermine economic growth by inhibiting their ability to make new loans.

The banks have been forced to take on to their books large amounts of commercial paper and leveraged loans after investor demand for such assets dried up in the summer.

David Rosenberg, economist at Merrill Lynch, said that this amount had risen to $280bn since the start of August.

He added that according to data from the Federal Reserve, large bank capital – represented by net assets – had declined by $40bn since the beginning of August. “This has never happened before over such a short timeframe and this is rather serious because such a steep and sudden compression in large-bank capital has the potential to create a negative lending environment,” he said.

If left unchecked, this could “significantly inhibit” economic growth, he added.

> via Minyanville The Bernanke Put Defined

"Access to a backstop source of liquidity in turn reduces the incentives of banks to limit the credit they provide to their customers and counterparties."

Read that statement carefully. It's the one key sentence in the entire speech.

The misunderstanding that is perpetuated is that the Fed by "providing liquidity" is not actually "providing credit."

What Bernanke's statement means is that, in reality, the two are synonymous.

European banks are facing similar pressures with many observers expressing concern at the ability of some smaller lenders to handle the potential strain on their balance sheets.

Fears over the effect of the credit squeeze on US bank balance sheets was one factor behind the US Treasury’s encouragement of the creation of a "super fund" to take on the assets of troubled investment vehicles.

The three top US banks – Citigroup, JPMorgan Chase and Bank of America – this week unveiled plans for a fund that would buy up to $100bn of mortgage-backed assets from structured investment vehicles.

Citigroup, which manages $80bn of assets in such vehicles, has bought some of the vehicles’ commercial paper.

On Monday, Citi said it was suspending share buy-backs because its capital ratios had weakened partly due to the large amount of commercial paper and leveraged loans it had taken on.

According to Moody’s, the credit rating agency, assets held by bank-sponsored special investment vehicles fell to $320bn from $395bn in July.

“The large banks have been forced to take commercial paper back on their balance sheets and as a result are choking on assets they did not plan on having – thereby tying up regulatory capital and in turn possibly leading to a reduction in credit extension,” said Mr Rosenberg.

He pointed out that 30 per cent of the growth in the debt that US households took on was backed by asset-backed investors.

Master Liquidity Enhancement Conduit / SIV & Conduit Bailout

It looks like the big players, the Treasury Department & the Fed have found a way to hold on to their off balance sheet addiction. Although the details are not clear yet i can´t help myself but whenever i hear "Big Banks" & Treasury Department and the Fed in one sentence it doesn´t smell like more transparency is on the way ....

Es sieht einmal mehr danach aus als wenn die großen Banken Hand in Hand mit dem Finanzministerium und der Fed Überstunden geschoben haben um auf jeden Fall zu verhindern das die bisherigen Off Balance Sheet Verbindlichkeiten in die eigene Bilanz aufgenommen werden müssen. Ich muß zugeben das immer wenn ich Banken, Finanzministerium und die Fed in einem Satz zu lesen bekomme es nicht zu Unrecht zu befürchten steht das die eh schon dürftige Transparenz noch mehr Schaden nimmt ...

And thanks to Aaron Krowne we know of some small print that is already in place to prop up these vehicles....

Und dank Aaron Krowne erfahren wir auch das die Fed bereits jetzt fleißig diese Konstruktionen ausserhalb der Bilanz auf eine Art und Weise fördert das es einem dem Atem verschlagen muß.......

Is The Fed Flushing Out The “Excess Credit” Demons?

With this in mind, those generally suspicious of the Fed might not be surprised to find out that the Bernanke bunch is busy suspending even more reserve requirements for many major banks amidst this credit crisis.

Specifically here I am referring to bank off-balance-sheet conduit subsidiaries (this is now how money market and similar vehicles are handled… which is a sketchy fact in and of itself). The Fed is apparently piling up exceptions to its regulation 23A, which normally mandates 10% reserves for such conduit entities.

The exceptions “temporarily” suspend these reserve requirements. They are open-ended. Hmmm.

One would think in a time of financial crisis that the monetary authorities would be increasing capitalization requirements. Not so in the bizarro-world of the US Fed — maintaining the con a little longer is top priority

Here the reports / Hier die Berichte

Citigroup, Bank of America Agree to Set Up $80 Billion CP Fund / Bloomberg

Banks to Start Fund to Protect Credit Market / NYT

Banks line up $75bn mortgage debt fund / FT

Rescue Readied By Banks Is Bet To Spur Market / WSJ

Here are other takes / Hier andere Meinungen

Mish Super SIVs - A Fraudulent Attempt at Concealment

Nacked Capitalism The Smoke and Mirrors SIV Rescue Plan

Zeitenwende Wall-Street plant Notfall-Fonds

Calculated Risk Musical SIVs

WSJ Deal Journal A Bailout for Citigroup?

Lee Adler The Worst Is Over ?

WSJ Opinion House of Paulson?

Paul Kasriel MLEC - Trying to Turn a Sows Ear into a Silk Purse?

Calculated Risk Institutional Risk Analytics on MLEC