Credit Derivatives Bailout Fund for CDO's, SPV, SIVs and more
Banks plan credit-market 'superfund'
Up to $100 billion to be used to shore up credit markets
WASHINGTON (MarketWatch) -- Major banks, including Citigroup Inc., J.P. Morgan Chase & Co. and Bank of America Corp., have reportedly agreed to create a "superfund" of up to $100 billion to clean up the credit markets. An announcement could come as early as Monday morning (10.15.07), The Wall Street Journal reported in its online edition.
The talks between the banks were initiated by the Treasury Department, which is playing a key advisory role.
The aim of creating such a fund reportedly would be to avert a massive sale of assets held by so-called structured investment vehicles, or SIVs.
Policymakers and others fear a fire sale of such illiquid assets could spark a broader credit crunch that would dent the economy.
SIVs are kept off of banks' balance sheets, making it difficult for investors to gauge related financial risks.
While central banks around the world have injected massive amounts of money into the global financial system since the start of the credit crunch last summer, some parts of the market still haven't recovered.
Investors have grown worried in recent weeks about the size of bank-affiliated funds with huge sums invested in subprime mortgage-related securities and other assets, the Journal reported on Saturday.
Citigroup has about $100 billion in seven SIVs, the report said.
Citigroup proposed the creation of a "superconduit" that would issue short-term debt and buy assets currently held by SIVs affiliated with the participating banks, the Journal reported.
J.P. Morgan Chase and Bank of America, neither of which have SIVs, have been in discussions with Citigroup regarding the fund, the Journal said.
The two would earn fees by helping to arrange the superconduit, and the fund's debt would be fully backed by participating banks.
Bloomberg reported that Treasury Secretary Henry Paulson, who headed Goldman Sachs Group Inc. before joining President Bush's Cabinet, met with Citigroup CEO Charles Prince, J.P. Morgan CEO Jamie Dimon and other major bank executives during the annual meeting of an industry trade group earlier this week.
Bank officials first met three weeks ago at the Treasury Department, the Journal said. That meeting was hosted by Robert Steel, Treasury's undersecretary for domestic finance.
The newspaper said Paulson decided to bring the banks together after conversations with business executives worried that SIV-related woes could harm the overall economy.
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posted by Victor Lloyd Smith @ 8:27 AM
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