Citigroup secures funding to cover US$80 billion in SIVs


NEW YORK — Citigroup Inc. confirmed Friday it has secured enough funding to cover the US$80 billion (euro55.99 billion) in assets held in its structured investment vehicles — at least until the end of the year.

This means Citigroup will not have to sell the debt underlying the seven SIVs it manages at bargain-basement prices, which would translate to losses for the bank.

SIVs are vehicles sponsored by banks that sell short-term debt — such as unsecured commercial paper — to investors such as hedge funds. The banks use the proceeds to buy longer-term assets, like mortgage-backed securities.

SIVs normally generate money through fees and the difference between short-term and long-term rates. But in August, demand for short-term assets dried up, creating liquidity problems for SIVs.

“We’ve seen the market for third-party funding improve,” said Jon Diat, spokesman for Citigroup’s alternative-asset management unit. He said Citigroup has found more than US$1.5 billion (euro1.05 billion) in funding from third-party sources in the last week.

He would not say who the buyers were, but said they were “top-tier name institutions.”

There are other questions, too, that remain — particularly, how much funding in total was required to secure the US$80 billion (euro55.99 billion) in assets, and is Citigroup itself one of the “top-tier” companies that provided funding?

Citigroup said it is under no contractual obligation to provide liquidity facilities or guarantees to the SIVs it advises, and that it will not consolidate the assets of the SIVs. It said it will “from time to time” provide liquidity to the SIVs it advises “on an arm’s length basis.”

Still, the bank, which on Monday posted a 57 percent drop in third-quarter profit on Monday, has obligations related to other structured products. It disclosed in a filing with the Securities and Exchange Commission that it’s on the hook for a maximum of US$117 billion (euro81.89 billion)if issuers can’t refinance short-term assets.

During the third quarter Citigroup’s corporate cash loans came to US$1.218 billion (euro0.85 billion), double the second quarter’s US$599 million (euro419.23 million), partly because it had what CFO Gary Crittenden called a “standby commercial paper arrangement” with Germany’s IKB Deutsche Industriebank AG. When IKB was unable to provide funding to one of its SIVs in the United Kingdom, Citigroup had to provide that funding.

Citigroup, along with JPMorgan Chase & Co. and Bank of America Corp., on Monday announced a plan for a fund to buy distressed securities in the credit market. Wachovia Corp. has since agreed to take part in the fund.

Participants in the fund deny it is a bailout of Citigroup or any bank. JPMorgan’s CEO Jamie Dimon during a conference call Wednesday with analysts said there are “asymmetric benefits” to the parties involved, but that it was a “reasonable” thing to do given the tightness in the credit markets.

The fund has attracted some criticism. Former Fed Chairman Alan Greenspan said in an interview with the newspaper Emerging Markets that the intervention risks undermining confidence in the markets further.

The fund, called M LEC, was structured by Citigroup’s markets and banking unit, whose plan was solicited by the Treasury Department to avoid a “fire sale” of asset-backed securities.

Citigroup’s alternative-asset management unit, which manages the bank’s SIVs, has not yet decided if it will draw from the fund.