More Details on Superfund (BAC, C, JPM)

Banking, finance, and taxes

Published: October 15, 2007 9:04 am

Last Updated: April 3, 2020 12:50 pm

More details are out on this huge superfund we covered over the weekend to take advantage of over-sold (or now illiquid) asset-backed securities and loans. The name of the structure is a master conduit to enhance liquidity ("M-LEC") in the market for asset-backed commercial paper and medium-term notes issued by structured investment vehicles ("SIVs"). Some would refer to this is a stabilizing fund or a bailout fund, and others might consider it more of a vulture fund.

Bank of America (NYSE:BAC), Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), and several other financial institutions reached an agreement in principle to create a single master liquidity enhancement conduit ("M-LEC"). Access to such liquidity is intended to allow participating sellers to meet pending redemptions and facilitate asset-backed commercial paper rollovers. That sounds like a bailout.

The press release says this M-LEC could be operational within 90-days. The Department of Treasury facilitated the discussions among the consortium of banks and investment managers. It almost sounds like the government is forcing the lenders to band together to keep the liquidity flowing, but you have to wonder if some further incentives were made. Imagine what the conspiracy theorists will be talking about.

The first vulture fund for an IPO was filed back in August, although it was not related to this superfund.

Jon C. Ogg
October 15, 2007

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