The big planned $100 billion "Super Fund" being put together by Citigroup (NYSE: C), JP Morgan (NYSE: JPM) and Bank of America (NYSE: BAC) may only raise half of its goal. The reason appears to be that the institutions that should have needed the money have found other ways to handle their problems.
As The Wall Street Journal points out: "In some cases, the SIVs are trying to solve their own problems. Last week, HSBC (NYSE:HBC) of the United Kingdom became the first bank to bail out its own funds."
Some of the mortgage-based securities in the SIVs have lost so much of their value that there are very few buyers for those assets, at least at prices close to their original values. SIVs that borrowed money to buy assets now face the need to repay their loans, but only a fire sale would bring in money. And with asset values down, there is no guarantee that the SIVs can raise enough cash to meet their debt obligations.
The "Super Fund" is being set up to give short-term loans to SIVs to avoid the "fire sale" scenario. But if the funds are finding a way around their problems, the new lending pool may not be necessary.
All of this makes the "Super Fund" appear more like the way the press and some analysts have portrayed it -- a bailout for Citigroup, which has a large obligation to affiliated SIVs and is already hurt by huge write-offs.
Perhaps once the fund is in place, Citi will be the only borrower. Since it is one of the participants in the "Super Fund," it can loan the money to itself.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
12-06-2007 @ 3:19PM
Americas Watchdog said...
Great work again Douglas;
We have the National Mortgage Complaint Center & the Corporate Whistleblower Center & we are up to our eye-balls in this mess. What the President did today sounds great & looks great, but we doubt it will be of much help. As we have been saying all along, "the mortgage meltdown is about values not sub-prime". In reality values have gone down 10%-15% in 2007 and we think this will actually get much worse in 2008. While I can't say their name, one of the largest lenders in the nation has 50% of the 2005 originations re-setting in 2008.
In September 2007 we did our 2008 national real estate forecast and we said it would be bad. Based on new data we have, we are now saying its going to be really bad. This "really bad" will impact banks, Homebuilders, and related sectors.
We still can't figure out where Wall Street seems to be missing the boat? We think its perhaps limp through Christmas, and then let everyone know how bad it really is, when the 4th quarter results start coming out. Think about this, if all US homebuilders stopped building today............it would take 17 months to get rid of their existing inventory. This does not include foreclosures, etc.
So where does this all leave us? We think US Pension funds (both public & private) are in really tough shape. They bought MBS's when the real estate boom happy hour was going on from 2003-2005. The problem now....the music has stopped and banks, homebulders and their friends in pension funds all have no chairs. The $64,000 question now is who will pick up the bar tab............or is the bar tab so much that no one can pay it? If no one can afford to pay it, then really bad goes to a place that scares me to death. It starts with a D.
12-06-2007 @ 3:26PM
Jill Schottenstein said...
Click here: Newsvine - henry-paulson
"Dodd threatens inquiry into Goldman Sachs for selling subprime mortgages while betting against them ."
"A powerful Democratic senator threatened Tuesday to investigate whether the Wall Street firm formerly run by Treasury Secretary Henry Paulson sold shaky mortgages to investors while betting they would fail."