HSBC not waiting for Paulson's Super SIV

Bloomberg News reports that HSBC Holdings Plc (NYSE: HBC), Europe's largest bank, has decided to rescue its own $45 billion worth of Structured Investment Vehicles (SIVs). HSBC's plan lowers the odds that Hank Paulson's Super SIV plan to rescue the $320 billion SIV industry -- whose values Fitch reports have declined to 70% of their stated worth -- will succeed. The implications for Citigroup Inc.'s (NYSE: C) $80 billion worth of SIVs are also potentially scary.

Specifically, HSBC will sell bonds to finance the purchase of two SIVs -- Cullinan Finance Ltd. and Asscher Finance Ltd -- taking on their $45 billion worth of mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs). By August 2008, HSBC expects to provide the new company that buys the SIVs' assets with $35 billion worth of funding and loan facilities, thus removing the risk of a forced sale of the SIVs' assets because of declines in the net asset values. HSBC says, however, that investors will still bear the losses stemming from defaults in the underlying assets.

It seems to me that HSBC's move could have an impact on the Super SIV intended to bail out Citigroup. By encouraging the prompt sale of the SIVs, CDOs and MBSs, HSBC could provide a model that others may follow. If successful, HSBC's approach could supersede the Super SIV plan. I'd prefer to see the banks bail themselves out, rather than relying on the government.