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Tuesday, December 11, 2007


citi quietly liquidating its SIVs

with participation interest in the paulson super-SIV looking weak, citi is trying to reduce its potential SIV exposure by other means.

Citi on Monday refused to comment on asset sales by its seven SIVs – all of which have been put on watch for downgrades by the rating agencies – but people familiar with the vehicles say their size has been cut from $83bn at the end of September to about $66bn largely by selling pro-rata portions of a SIV’s portfolio of assets to investors in the most junior notes at market values. Citi is also talking to some investors about directly swapping their holdings for underlying assets.

i'd like to know what citi considers as "market values".

junior investors are in line to be wiped out, so one can see their incentive in liberating whatever they can from frozen SIVs and taking the losses themselves while forestalling forced liquidation. it's hardly a good thing -- but, as citi is surely pointing out to all investors in the SIVs it administrates, citi is under no obligation nor really in a position to take the losses, nor even to fund the SIV by taking it on-balance-sheet and preserving it from no-holds-barred liquidation. this is strictly a case of investors taking the most immediate of a lot of awful resolutions.

meanwhile, plans for in-kind redemptions of SIV-similar assets are becoming all too common in enhanced-cash stable value funds, though actual money market funds have so far seen cash bolstering by their bank affiliates thusfar. no one investing in these things could have imagined that they'd be looking at losses, in some cases very significant losses.

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