Halved in size, in fact.
Two months ago and Citi, Bank of America and JPMorgan, together with Hank Paulson at the US Treasury hoped to put paid to the rumbling SIV drama with plans for a $100bn “superfund” troubled SIVs could be liquidated into.
Granted, for a while, it worked. All went quiet on the SIV front through October. Apart, of course, from the nagging questions some commentators had about the design and purpose of the “Master Liquidity Enhancement Conduit” (M-LEC).
Doubts shared by most banks out there it seems. The WSJ reports that the three arranging banks (led by Citi) are being forced to scale back their ambitions. Few foreign banks are willing to take part, and so M-LEC is going to be scaled right down, to around $50bn - according to people “familiar with the matter”.
Regardless of that claim, it certainly does seem that other banks are content to deal with their SIV troubles alone. HSBC consolidated $45bn of SIVs — Cullinan, the world’s largest, and Asscher — onto its balance sheet in late November. And Standard Chartered announced on Wednesday that it was taking a portion of its Whistlejacket SIV onto its books. Both were once slated as M-LEC participants.
The scaling back of M-LEC, if true, raises one niggling question. Since its inception, the superfund has been viewed with caution - largely because it looked to many like a very thinly veiled bailout for Citi’s SIVs, with a few crumbs promised to others who jumped aboard. But at only $50bn in size, M-LEC couldn’t possibly accommodate all of Citi’s SIV assets, which total an estimated $66bn as of November 30 (down from $83bn at the end of September).
What, then, is Citi going to do with the leftover SIV bits?
It’s already been made abundantly clear that M-LEC will only be buying the highest rated assets from participants’ SIV portfolios - so that leaves way north of $16bn from the scraggy end of Citi’s SIV assets floating around.Consolidation?
