Citigroup to Rescue Its Own SIVs

Despite its previous statements that it would not take its SIVs on to its balance sheet, Citigroup has reversed itself, announcing that it will assume $49 billion of SIV assets. The move was prompted by the Moody’s’ announcement that it was reviewing virtually all of Citi’s SIVs for a possible downgrade.

A side effect is that means that the SIV rescue vehicle promoted by the US Treasury Department and sponsored by Citi, Bank of America, and JP Morgan, looks even less likely to come into being. WestLB and HSH Nordbank have recently joined the ranks of banks deciding to rescue their affiliated SIVs rather than wait for the bailout fund.

From Bloomberg:

Citigroup Inc. will bail out its seven structured investment vehicles, bringing $49 billion of assets onto its balance sheet in the biggest move yet by a bank to rescue the failing funds…..

Chief Executive Officer Vikram Pandit announced the decision after being named to the post Dec. 11. Moody’s said Dec. 3 that it is preparing to cut ratings on $105 billion of SIV debt, including commercial paper and medium term notes of six managed by Citigroup. The SIVs owned by Citigroup have $58 billion in senior debt and $13 billion in cash….

Bringing the assets on the balance sheet may be better than creating potential losses for creditors to its SIVs, said Don van Deventer, chief executive officer at Kamakura Corp., a Honolulu- based provider of software and research to financial companies that has done work for owners of SIV liabilities.

“In the end I think the calculation is the reputational damage would cost more than the incremental cash to bail it out,” van Deventer said. “They’ve got a lot on the line. What we’ve just learned is SIVs are not an off-balance sheet vehicle we thought they were. The reality is the SIVS are off-balance sheet when times were good and on balance sheet when times are bad.”

The assets have declined to $62 billion, including $13 billion of cash, from $87 billion in August.