Sigma Finance, the last of the complex debt funds at the heart of the credit crisis has collapsed and is to appoint receivers, ending a 25-year project to create a “shadow banking” industry. The collapse follows the cutting of a funding line by JPMorgan. Sigma, a $27bn structured investment vehicle managed by UK-based Gordian Knot, is the last surviving member of a once $400bn industry crushed by declining asset values and lack of new funding. Like many SIVs, Sigma came to rely on banks to provide funding through repo markets, in which a seller of debt securities promises to buy them back later for a mutually agreed price. But after the default of Lehman Brothers and other big debt issuers in past month and the restriction of funding conditions for banks themselves, at least three decided to seize and sell collateral from Sigma to recover their loans. JPMorgan’s decision to declare Monday a default on its repo funding to Sigma prompted Moody’s and S&P to downgrade the SIV’s outstanding bonds to their lowest ratings. Separate FT analysis here.
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