Several banks, including Citigroup (NYSE: C), JP Morgan (NYSE: JPM), and Bank of America (NYSE: BAC) have been hard at work creating a "superfund" to offer short term loans to funds know as structured investment vehicles. According to The Wall Street Journal "the SIVs have been the focus of attention because Citigroup sponsors seven SIVs."
Now it appears that the formation of the superfund may come too late. Moody's has downgraded the securities in a number of the SIVs and this could trigger forced sales of some of their assets. That, in turn, could drive the value of the remaining assets down further. The Journal adds "the SIV market is made up of about 30 funds that own some $300 billion in assets."
Citi may have to step in on its own to save the SIVs affiliated with the big bank. In other words, it may have to lend money to them to avoid a liquidation at very low prices compared to what the funds paid for the securities. It is yet another potential burden for the already beleaguered bank.
Citi can get into more trouble than it is in now, much more trouble. With its shares down from a 52-week high of $57 to under $34, it may look inexpensive.
But, that is probably a misconception.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
11-15-2007 @ 1:50PM
Chuck McGuire said...
I don't believe that the US Treasury should back these big banks to help them save their off balance-sheet companies. The banks need to be more fiscally responsible when they lend money to risky borrowers. Let's not try to belabor the pain which should be written off today.
It sounds a lot like the corruption at Enron.