SIV News – HSBC Decides To Open The Curtains

| November 26, 2007

HSBC Logo2.png

Second post today about the SIV mess. To sum up what has happened so far, HSBC (one of the largest UK banks) has decided to move some of its funky SIVs onto the balance sheets in an attempt to build investor confidence. In response, Citigroup, who has many times more exposure to this garbage than HSBC, is starting to get pressure from investors to do the same.

From Yahoo News: HSBC Fund Bailout Raises Citi Questions

Citigroup said it has no plans to mimic HSBC’s move. So far, Citi has committed $10 billion in liquidity to the seven structured investment vehicles it manages on an “arm’s length” basis, and has kept them off its balance sheet — meaning Citi has not been counting the SIVs’ debt as its own.

That strategy may end up backfiring, though, some industry watchers say, because shareholders, fed up with remaining in the dark about how much risk the largest U.S. bank holds, are selling off.

“Citi is in what I’ll call a reputation race,” said Ed Ketz, associate professor of accounting at the Smeal College of Business at Pennsylvania State University and co-author of a new book called “Fair Value Measurements.” “It is competing with HSBC and others in terms of who can be trusted.”

If Citi changes its mind and put its SIVs on its balance sheet, it may be forced to take even bigger writedowns than the $8 billion to $11 billion it projected for the fourth quarter. The seven SIVs have, in total, about $83 billion in assets.

But if Citi doesn’t put its SIVs on its balance sheets and other banks do, it risks looking as if it is deliberately obscuring its holdings. Other companies that manage SIVs besides Citi and HSBC include MBIA, Rabobank, Standard Chartered Bank, Bank of Montreal and Societe Generale.

HSBC’s move also complicates Citi’s plans for a “super fund” to buy up hard-to-sell securities — an arrangement that does not appear to be attracting as many participants as Wall Street hoped. So far, only Wachovia Corp. has officially agreed to participate in the plan, after Citi, JPMorgan Chase & Co. and Bank of America Corp. announced the project seven weeks ago.

We have posted before on this blog about Citi and the Super Conduit. Amazing the pace at which things are now accelerating. The press and the government have worked hard to convince folks the problems of this summer were a bump in the road now well behind us. Indications are that things are now as bad or worse and trending down. More news about what 2008 will likely bring later this week.

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Category: Credit Backlash, Economics, Main

About the Author ()

Bruce Henderson is a former Marine who focuses custom data mining and visualization technologies on the economy and other disasters.

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