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Citigroup SIVs Draw $7.6 Billion of Emergency Funds (Update1)
By Neil Unmack and Jody Shenn
Nov. 6 (Bloomberg) -- Citigroup Inc., the largest U.S. bank by assets, provided $7.6 billion of emergency financing to the seven structured investment vehicles it runs after they were unable to repay maturing debt.
The SIVs drew on the $10 billion of so-called committed liquidity provided by Citigroup, according to a Securities and Exchange Commission filing yesterday.
Citigroup's disclosure came a day after it announced as much as $11 billion of debt writedowns linked to U.S. subprime mortgages, and the resignation of Chief Executive Officer Charles O. ``Chuck'' Prince III. The New York-based bank also said in the SEC filing that the amount of securities it owns that are considered hardest to value, known as Level 3 assets, rose 42 percent in the third quarter to $135 billion.
``This company, if it were any other company, would probably be considered to be operating in an unsafe and unsound condition,'' said Josh Rosner, managing director at New York- based investment research firm Graham Fisher & Co.
SIVs sell commercial paper to buy longer term assets such as mortgage or bank bonds. Citigroup SIVs have no direct investments in subprime assets and $70 million of ``indirect exposure'' through collateralized debt obligations, or bonds that package debt, according to the filing.
Avoiding Fire Sale
``The current lack of liquidity in the asset-backed commercial paper market,'' Citigroup said, ``put significant pressure on the ability of all SIVs, including the Citi-advised SIVs, to refinance maturing commercial paper.'' The liquidity line is provided at ``arm's length commercial terms,'' the statement said.
Citigroup won't consolidate the assets of the SIVs on its balance sheet, according to the filing.
Citigroup created the first SIV in 1988 and is the largest manager of the companies. The bank, along with JPMorgan Chase & Co. and Bank of America Corp., agreed last month to start an $80 billion fund to help SIVs avoid dumping their $320 billion of holdings at fire sale prices and further roiling credit markets.
Citigroup fell $1.16, or 3.23 percent, to $34.74 at 12:30 p.m. in New York Stock Exchange composite trading, after declining 4.9 percent yesterday. The stock had dropped more than 35 percent this year before today. Only National City Corp. and Washington Mutual Inc. had posted bigger losses of the 24 companies in the KBW Banks Index.
LTCM Experience
Credit-default swaps tied to Citigroup bonds traded at the highest level in at least five years yesterday, suggesting investor confidence is eroding. The contracts, used to speculate on a borrower's ability to repay debt, rise as the perception of credit quality deteriorates. The contracts fell 5 basis points to 67 basis points today, according to Phoenix Partners Group in New York.
Citigroup named Richard Stuckey, 51, to manage most of its $43 billion of subprime mortgage assets, the same executive who helped unwind hedge fund Long-Term Capital Management LP's bad bets nine years ago.
Investors are refusing to buy commercial paper, loans due in 270 days or less, from some SIVs because they are concerned about the value of the mortgage securities, asset-backed debt and finance company bonds they own.
U.S. asset-backed commercial paper shrank for 12 straight weeks to a seasonally adjusted $874.7 billion last week, the lowest since April 2006, according to the Federal Reserve in Washington.
Citigroup's SIVs sold $19 billion of assets between July and the end of September, reducing their assets to $83 billion from just over $100 billion, according to the filing. About 98 percent of the companies' assets are fully funded through the end of 2007, the filing said.
Citigroup said it doesn't own any of the SIVs' capital notes, which rank below the senior commercial paper and first in line for losses.
To contact the reporter on this story: Neil Unmack in London at nunmack@bloomberg.net
Last Updated: November 6, 2007 12:51 EST
By Neil Unmack and Jody Shenn
Nov. 6 (Bloomberg) -- Citigroup Inc., the largest U.S. bank by assets, provided $7.6 billion of emergency financing to the seven structured investment vehicles it runs after they were unable to repay maturing debt.
The SIVs drew on the $10 billion of so-called committed liquidity provided by Citigroup, according to a Securities and Exchange Commission filing yesterday.
Citigroup's disclosure came a day after it announced as much as $11 billion of debt writedowns linked to U.S. subprime mortgages, and the resignation of Chief Executive Officer Charles O. ``Chuck'' Prince III. The New York-based bank also said in the SEC filing that the amount of securities it owns that are considered hardest to value, known as Level 3 assets, rose 42 percent in the third quarter to $135 billion.
``This company, if it were any other company, would probably be considered to be operating in an unsafe and unsound condition,'' said Josh Rosner, managing director at New York- based investment research firm Graham Fisher & Co.
SIVs sell commercial paper to buy longer term assets such as mortgage or bank bonds. Citigroup SIVs have no direct investments in subprime assets and $70 million of ``indirect exposure'' through collateralized debt obligations, or bonds that package debt, according to the filing.
Avoiding Fire Sale
``The current lack of liquidity in the asset-backed commercial paper market,'' Citigroup said, ``put significant pressure on the ability of all SIVs, including the Citi-advised SIVs, to refinance maturing commercial paper.'' The liquidity line is provided at ``arm's length commercial terms,'' the statement said.
Citigroup won't consolidate the assets of the SIVs on its balance sheet, according to the filing.
Citigroup created the first SIV in 1988 and is the largest manager of the companies. The bank, along with JPMorgan Chase & Co. and Bank of America Corp., agreed last month to start an $80 billion fund to help SIVs avoid dumping their $320 billion of holdings at fire sale prices and further roiling credit markets.
Citigroup fell $1.16, or 3.23 percent, to $34.74 at 12:30 p.m. in New York Stock Exchange composite trading, after declining 4.9 percent yesterday. The stock had dropped more than 35 percent this year before today. Only National City Corp. and Washington Mutual Inc. had posted bigger losses of the 24 companies in the KBW Banks Index.
LTCM Experience
Credit-default swaps tied to Citigroup bonds traded at the highest level in at least five years yesterday, suggesting investor confidence is eroding. The contracts, used to speculate on a borrower's ability to repay debt, rise as the perception of credit quality deteriorates. The contracts fell 5 basis points to 67 basis points today, according to Phoenix Partners Group in New York.
Citigroup named Richard Stuckey, 51, to manage most of its $43 billion of subprime mortgage assets, the same executive who helped unwind hedge fund Long-Term Capital Management LP's bad bets nine years ago.
Investors are refusing to buy commercial paper, loans due in 270 days or less, from some SIVs because they are concerned about the value of the mortgage securities, asset-backed debt and finance company bonds they own.
U.S. asset-backed commercial paper shrank for 12 straight weeks to a seasonally adjusted $874.7 billion last week, the lowest since April 2006, according to the Federal Reserve in Washington.
Citigroup's SIVs sold $19 billion of assets between July and the end of September, reducing their assets to $83 billion from just over $100 billion, according to the filing. About 98 percent of the companies' assets are fully funded through the end of 2007, the filing said.
Citigroup said it doesn't own any of the SIVs' capital notes, which rank below the senior commercial paper and first in line for losses.
To contact the reporter on this story: Neil Unmack in London at nunmack@bloomberg.net
Last Updated: November 6, 2007 12:51 EST
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