Citigroup (C) takes in SIVs, has debt downgrade

Citigroup (NYSE: C) did what it probably had to do by bringing $49 billion in SIV assets onto its balance sheet. The "Super Fund" set up to help the structured vehicles was not getting much interest from potential investors. Several other big banks like HSBC (NYSE: HBC) had moved their SIVs in-house.

Whether the move contributed to it or not, Moody's downgraded Citi's debt one notch to Aa3. "The bank will probably "take sizable writedowns'' for securities backed by home mortgages and collateralized debt obligations," Moody's Senior Vice President Sean Jones said in a statement picked up by Bloomberg. Moody's is concerned that the bank's weak capital ratios may keep it from getting out of harm's way anytime soon.

That leaves the markets to ponder what will happen to Citi over the next year or two. The bank is probably still too big to be bought by another large money center bank, unless its stock falls further. It has already lost almost half of its value this year and now trades around $30 on a good day.

Citi is almost certainly faced with more write-downs, leaving it with very few options. It could go to a sovereign fund again. Those in the Middle East and Singapore have shown a taste for risk. Or, the Fed may have to step in with special loans, if things get bad enough.

The conventional wisdom is that Citi is "too big to fail." But wisdom cannot see the future.

Douglas A. McIntyre is an editor at 247wallst.com