With Amount In "Super Fund " Falling, Project Looks More Like Citigroup (C) Bail-Out

Banking, finance, and taxes

Published: December 6, 2007 5:43 am

A funny thing happened on the way to creating a $100 billion "Super Fund" to loan money to SIVs which needed short term cash to stay in business. These SIVs own a lot of mortgage-backs securities which have fallen in value. If these assets can be sold it would be at deep discounts, not enough to pay off money owed to big banks. So, the "Super Fund" can loan them money to tide them over.

But, a lot of SIVs are finding other ways out. SIVs affiliated with HSBC (HBC) were simply taken onto the UK bank’s balance sheet. Other large banks are considering similar moves.

Some SIVs have sold off a large portion of their assets. This may have hurt given that it was almost certainly done at big discounts, but it does bring in cash to make debt payments.

But, Citigroup (C) still has affiliated SIVs with $66 billion in assets. Those SIVs have sold some of their securities, but it is open to question whether what is left can be sold. Citi SIVs may need the short-term "Super Fund" loans more than any other group.

So, since Citi is putting money into the big new fund, it is lending the money to itself.

Douglas A. McIntyre

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