There has been an odd hiatus. Back in August, SIVs were dooming us all. Barely a day would go by without some bank disclosing funding lines to a troubled conduit. And then - ah-whoom - it all went quiet. The world seemed to have moved on. Wall Street’s Q3s were coming, the Fed cut rates, banks didn’t implode, equities soared, and there was a great collective relaxing of shoulders.
Until October. Then a plan by three big banks to build a new “superconduit” - M-LEC - reminded everyone of the forgotten SIV. Problem. Why, everyone wondered, did we need M-LEC? Thing’s were alright, no?
Since SIVs were last in the limelight, things have not improved. In fact, asset prices in SIVs have continued to slide. Take a look at this graph, published by Fitch ratings in a note to clients:
Net Asset Value, or NAV, is a measure of the amount by which the market value of a SIVs portfolio exceeds the senior debt, divided by the capital - in other words, a measure of a SIVs underlying worth after leverage.
Not only does Fitch’s graph highlight that SIV’s fortunes have steadily worsened, it also points to a growing divide. Some SIVs are in a far worse NAV situation than others. Axon Financial, managed by TPC-Axon Capital Management, has a NAV currently at 35-40 per cent. Compare to AbAcAs Investments, managed by EBI/NSM. Its net asset value (NAV) is at around 100-105 per cent.
Even if funding briefly loosened up after August, SIV NAVs are still clearly troubled.
Citi - the prime mover behind M-LEC, is a case in point. While the bank could last week declare it had funding for all its SIV CP for the next year, it couldn’t rest on its laurels: The 3 Citi SIVs Fitch rates (in total there are 7) have seen NAVs slide pretty much in line with Fitch’s graph. On September 6, Beta’s NAV was 85.3 per cent, Five’s NAV was 81.6 per cent and Sedna’s NAV was 81 per cent. One month later, on October 8, Fitch puts Beta at 75-80 per cent, Five at 70-75 per cent and Sedna at 75-80 per cent. A decline of up to 10 per cent.
M-LEC is not only about restoring confidence and making the market more transparent. It’s about restoring asset values.
