Several banks with troubled fixed income and mortgage securities are making the rounds to raise $80 billion to $100 billion to build a fund to buy some of this distressed debt. Citicorp (C) has the largest pool of these instruments, so it has the most to gain, or lose, if the fund has any problems.

Well, it appears that the work to build this pool of capital is already fraying at the edges.

According to The New York Times, the three big banks involved in the deal, Cit, BAC, and JP Morgan (JPM) are having trouble getting their ducks in a row. "All three banks agree on the concept but differ on the details. Other questions remain. How will the plan work? Who will participate? How much will its backers put in? "

Enough money has been raised to support the problem through the end of the year, but, after that, there could be trouble. Some large institutional investors like Pimco and T Rowe Price, have passed on investing in the fund. Some of the big investment banks, like Goldman, feel that they don’t have enough information about the fund to commit to putting in money.

As NYT reports "Some say the effort will just delay the inevitable by repackaging bonds backed by mortgages, loans and other assets that investors know little about and that have fallen in value."

The big bail out could be still born. Citi could face huge write offs. Chuck Prince could still lose his job.

Like all plans where the interests of the participants are not aligned, things can come undone fast. It would not be foolish to assume that the plan never comes together.

Douglas A. McIntyre

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