Structured Investment Vehicles have become the problem child of the capital markets, and stronger banks such as HSBC have been keen to advertise their stamina by adopting them. But Standard Chartered’s assumption of $1.68bn of assets held by a SIV called Whistlejacket falls into a different category.
To re-cap, SIVs issue short-term “commercial paper” loans to raise funds for investing in higher yielding assets such as mortgages and corporate loans. A sponsoring bank will usually both manage and invest in the SIV’s assets, but will have no formal obligation to fund it if - as happened over the summer - the commercial paper market dries up.
Whistlejacket seems to have struggled like other SIVs to get commercial paper away lately. But its asset quality has been good enough to convince its investors to participate - along with external buyers - in the liquidation of about 41 per cent of its portfolio. Standard Chartered, itself an investor in the vehicle, has wisely joined in.
The bank had little choice but to do so. It could ill afford to be seen to be taking a back seat. All the same, the fact that investors have been willing to take on so many of Whistlejacket’s assets reflects well on the bank. It is evidence both of the capital strength of Standard Chartered’s co-investors, and the underlying quality of the assets in question.
Moreover, Standard Chartered is well placed to be SIV-friendly. There aren’t many lenders around whose year-end trading statements report strong income growth almost across the board and boast that they are providers of liquidity to the strained inter-bank lending market.
True, headwinds are gathering force. It is hard to believe that a slowing US economy will not impact the emerging market boom that has fuelled Standard Chartered’s growth and immunised it against the credit crunch. But for the time being, the bank’s premium stock-market rating looks safer than ever.
