HSBC (HBC) Puts SIVs Onto Balance Sheet, Pressures CitiGroup (C)

HSBC (HBC) is taking $41 billion in SIV assets onto it balance sheet, a move that could pressure US banks like Citigroup (C) to follow. Bloomberg writes "investors in the SIVs will be able to exchange their holdings for debt issued by a new company, backed by loans from HSBC, the London-based bank said in a statement." An executive at the bank commented “HSBC’s actions will set a benchmark and restore a degree of confidence to the SIV sector."

Citi (C) is putting together a fund to bail-out SIVs, many of them affiliated directly with the bank. Bank of America (BAC) and JP Morgan (JPM) have agreed to put money into a “SuperSIV” fund. The total pool of about $80 billion would be used to offer short-term investments to SIVs in an attempt to prevent sell-offs of their asset at low prices.

But, the HSBC approach is the better one. It make the make take direct responsibility for SIV asset without the "financial engineering" of an outside fund. The only question is whether Citi can afford to do this given all of its other problems?

Douglas A. McIntyre