Citicorp To Assume Control Of 7 Hedge Funds: Bank Gets Back Loans It Sold Off
Friday, 14. December 2007, 03:13:11
When I first saw the Associated Press headline Citigroup to Assume Control of SIVs, it hit me with such force I was stunned: it took me about a minute to gain composure.
Yes I knew other banks had been doing this kind of thing, but seven of them for $49 Billion!
And then I read the detail, there are about 23 more of these monsters out there.
Look, the bank sold them off, they should not be taking them back.
We were warned that there were "equity puts", but the bank should not honor them and not be taking the assets back; they belong to those who bought them.
The announcement came at night and after the Fed two days ago said it had an auction process to transfuse the banks, and now I know why; they will need all the cash flow the Fed can muster to service the loans, and keep the underlying real estate from loosing like 90% overnight.
It's scandalous, and it's downright criminal; Citicorp's former boss Charlie Prince should be arrested; I guess life goes on.
The overall market -- VTI slipped some on a small amount of volume; tomorrow there will be a lot of volatility to get things headed south again. After all, stocks are in an Elliott Wave 3 Down
Here's the chart of the Volatility and Russell 2000, IWM; the volatility destroyed 0.59 percent of investors value today; simply the primary bear market (Tim Wood, and also Richard Russell) eating away equity.
The Russell 2000 with the Bush Paulson mortgage saving rally shown before the sell off expressing dissappointment over only 0.25 rate cut and trading before the current Citicorp announcement.
Here's the report, it came at night, Thursday December 13, 2007 7:50 pm ET:
NEW YORK (AP) -- Citigroup Inc. said Thursday it plans to assume control of the seven "structured investment vehicles" the bank advises to help them repay their debts.
Citigroup will provide a "support facility" for its seven SIVs with investments totaling $49 billion and incorporate them onto its balance sheet. The bank previously said it had no plans to bring the SIVs onto its books.
SIVs are complex investment funds established by banks like Citigroup and sold to investors. SIVs borrow money by selling short-term debt like term notes and commercial paper, then using the borrowed money to buy bank, mortgage and credit card debt that yield higher returns.
The funds profit off management fees and the spread between how much they collect on the investments and how much it costs them to borrow.
SIVs jumped to the forefront of this year's credit crisis when many of the investments they held, particularly mortgage investments, lost a lot of value as demand for risky debt shriveled.
This triggered concern that lenders would be unwilling to keep lending to SIVs. The viability of a SIV hinges on its ability to continue borrowing short-term money. If it is unable to renew loans, it has to find new sources of cash or liquidate its investments to repay lenders.
Moody's Investors Service and Standard & Poor's -- two of the three major credit-rating agencies -- were considering downgrading the ratings on several of the world's roughly 30 SIVs, including the seven Citigroup created.
Citigroup will bring the SIVs onto its balance sheet in order to protect their credit ratings and give them time to sell their assets, the bank said.
After Citi's announcement, Moody's downgraded Citigroup's long-term credit rating to "Aa3" from "Aa2," and lowered Citibank's Bank Financial Strength Rating to "B" from "A-," citing the view that Citigroup's capital ratios will remain low.
The company's Tier 1 capital ratio -- its ratio of cash to debt for regulatory purposes -- was about 7.3 percent as of Sept. 30. Citi said adding the SIVs to the company's balance sheet would reduce the ratio by 0.16 percentage point but it still expects to return to its targeted ration of 7.5 percent in the first half of 2008.
The bank said it expects its SIVs to be able to meet their liquidity needs, which total $35 billion, through the end of next year. Citigroup expects to provide "little or no" financing.
"After considering a full range of funding options, this commitment is the best outcome for Citi and the SIVs," said Vikram Pandit, who was named Citigroup's chief executive officer Tuesday.
Other banks have made similar moves. HSBC Holdings PLC said last month that it would put two funds with mortgage exposure on its balance sheet and spend $35 billion to bail them out.
Yes I knew other banks had been doing this kind of thing, but seven of them for $49 Billion!
And then I read the detail, there are about 23 more of these monsters out there.
Look, the bank sold them off, they should not be taking them back.
We were warned that there were "equity puts", but the bank should not honor them and not be taking the assets back; they belong to those who bought them.
The announcement came at night and after the Fed two days ago said it had an auction process to transfuse the banks, and now I know why; they will need all the cash flow the Fed can muster to service the loans, and keep the underlying real estate from loosing like 90% overnight.
It's scandalous, and it's downright criminal; Citicorp's former boss Charlie Prince should be arrested; I guess life goes on.
The overall market -- VTI slipped some on a small amount of volume; tomorrow there will be a lot of volatility to get things headed south again. After all, stocks are in an Elliott Wave 3 Down
Here's the chart of the Volatility and Russell 2000, IWM; the volatility destroyed 0.59 percent of investors value today; simply the primary bear market (Tim Wood, and also Richard Russell) eating away equity.
The Russell 2000 with the Bush Paulson mortgage saving rally shown before the sell off expressing dissappointment over only 0.25 rate cut and trading before the current Citicorp announcement.
Here's the report, it came at night, Thursday December 13, 2007 7:50 pm ET:
NEW YORK (AP) -- Citigroup Inc. said Thursday it plans to assume control of the seven "structured investment vehicles" the bank advises to help them repay their debts.
Citigroup will provide a "support facility" for its seven SIVs with investments totaling $49 billion and incorporate them onto its balance sheet. The bank previously said it had no plans to bring the SIVs onto its books.
SIVs are complex investment funds established by banks like Citigroup and sold to investors. SIVs borrow money by selling short-term debt like term notes and commercial paper, then using the borrowed money to buy bank, mortgage and credit card debt that yield higher returns.
The funds profit off management fees and the spread between how much they collect on the investments and how much it costs them to borrow.
SIVs jumped to the forefront of this year's credit crisis when many of the investments they held, particularly mortgage investments, lost a lot of value as demand for risky debt shriveled.
This triggered concern that lenders would be unwilling to keep lending to SIVs. The viability of a SIV hinges on its ability to continue borrowing short-term money. If it is unable to renew loans, it has to find new sources of cash or liquidate its investments to repay lenders.
Moody's Investors Service and Standard & Poor's -- two of the three major credit-rating agencies -- were considering downgrading the ratings on several of the world's roughly 30 SIVs, including the seven Citigroup created.
Citigroup will bring the SIVs onto its balance sheet in order to protect their credit ratings and give them time to sell their assets, the bank said.
After Citi's announcement, Moody's downgraded Citigroup's long-term credit rating to "Aa3" from "Aa2," and lowered Citibank's Bank Financial Strength Rating to "B" from "A-," citing the view that Citigroup's capital ratios will remain low.
The company's Tier 1 capital ratio -- its ratio of cash to debt for regulatory purposes -- was about 7.3 percent as of Sept. 30. Citi said adding the SIVs to the company's balance sheet would reduce the ratio by 0.16 percentage point but it still expects to return to its targeted ration of 7.5 percent in the first half of 2008.
The bank said it expects its SIVs to be able to meet their liquidity needs, which total $35 billion, through the end of next year. Citigroup expects to provide "little or no" financing.
"After considering a full range of funding options, this commitment is the best outcome for Citi and the SIVs," said Vikram Pandit, who was named Citigroup's chief executive officer Tuesday.
Other banks have made similar moves. HSBC Holdings PLC said last month that it would put two funds with mortgage exposure on its balance sheet and spend $35 billion to bail them out.
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