SuperSIV: Not Wanted and No Longer Needed?
The Superfund designed to salvage Structured Investment Vehicles continues to struggle to attract participants, the Wall Street Journal Reports. This will come as no surprise to readers of Research Recap, which first flagged the lack of enthusiasm for the M-LEC SuperSIV in October.
Meanwhile, CreditSights suggests that while the fallout of the SIV’s woes may be widespread and long-lasting, the need for the Superfund is diminishing.
The WSJ says that in recent weeks, a number of SIVs have opted to find their own solutions to the credit crunch rather than waiting for the super fund, which is expected to start in mid-January. HSBC has bailed out its own funds, taking $45 billion in mortgage-backed securities and other assets onto its balance sheet. Similar actions have been taken by Société Générale, Standard Chartered and Rabobank Group. Citigroup Inc., which managed nearly $100 billion in SIV assets in August, has sold off about a third of those assets.
Meanwhile, Gordian Knot, which runs one of the largest SIV funds, has informed the banks it doesn’t intend to sell assets into the super fund, according to a person familiar with the situation.
And the decision by Citigroup, one of the three lead sponsors of the SuperSIV, to bail out its own SIVs to the tune of $49 billion, could be the final nail in the plan’s coffin.
CreditSights notes that SIVs have reduced their holdings by more than 25% since August and that ignores the $80+ billion that banks have brought home on their own balance sheets – which has contributed to the banks’ woes.
The larger that latter number gets, the less the risk there is to the market that massive amounts of assets will be dumped and the less of a need there is for the infamous Super-SIV.
“Amidst news of structured finance operating companies experiencing declining volumes and being wound down, we would make the observation that these entities are the tip of the structured finance iceberg. They represent a visible and widespread investor base given their historic low vol, low risk, low yield nature. However, we note that their underpinnings are virtually identical to that of other structured finance entities and that as ratings models are revised across the structured finance universe, we feel that more of the glacier will be revealed. “
CreditSights notes that the 25% decline in holdings has resulted in a NAV drop of some 47 percentage points. SIVs were hit by a double whammy that affected both sides of their balance sheet. On the asset side, problems in their holdings stemming from mortgages and other credit-related instruments caused them to look much more risky to investors, which in turn affected their liability side. On the liability side, risk-averse investors were not attracted to the relatively low yields offered by the vehicles’ funding arms to compensate them for the questionable asset quality. When you lose on both sides, you lose big.”
The CreditSights report Its Not the AAAssets, Its the MethoDDDology – The SIV Saga Continues is available for purchase.
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January 15th, 2008 at 10:43 am
[...] final nail in the fund’s coffin was the move by one of its lead sponsors, Citigroup, to bring some of its SIV exposure onto its own [...]