Monday, October 15, 2007

The great Citi Siv debate

Squeeze, crunch, hangover…call it what you will, earlier reports that the crisis surrounding the credit markets was over appear to have been exaggerated.

Why else construct a bail-out fund, or conduit, variously put at $75bn-$100bn, to hoover up distressed SIV assets?

That’s what Citi, JPMorgan and Bank of America are busy constructing, with the tacit support of the US treasury, according to the Wall St Journal. But while the Journal piece indicated that Britain’s FSA was encouraging big banks on this side of the Atlantic to participate in the plan, Reuters was reporting HSBC’s head of global commercial banking, Sandy Flockhart, speaking in Hong Kong, as saying:

At this point in time, it’s not something that we discussed with the parties.

Krishna Guha and Gillian Tett, writing in the FT, said this “super-conduit” idea was a “a private-sector developed and proposed solution” where the US treasury helped “mediate the conversation,” according to someone with knowledge of the inter-bank discussions.

Citi has created more SIVs than almost any other bank, Guha and Tett note, though its executives insist these vehicles are relatively healthy. And, on the subject of inter-bank rivalries:

A person familiar with the meetings denied that the super-conduit plan was in any way anti-competitive. “Granted there are people who would benefit from watching Citi bleed to death, but everybody agreed at the first meeting this was something positive.”

Bank of America had been “as integral in getting this done as Citigroup” and JPMorgan had been “half-committed” before climbing on board last week.

Meanwhile, Deal Journal, the WSJ’s deal blog, brazenly asks whether this is all just a bailout for Citi.

When does an “improvement in liquidity” represent a “bailout”?’s hard not to look at the current details…as a big Treasury-blessed assist for Citigroup…

Even without specifics, it’s clear that Citigroup has the most to gain from this operation. And it’s clearly bad if the balance sheet of the country’s largest bank were frozen for months on end as it poured money into contractual unwindings of SIV positions.

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Lunch is for wimps

Lunch is for wimps
It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.