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Another SIV bites the dust. Dresdner on Thursday became the latest bank to step in to prevent a firesale of assets by ponying up a liquidity line to its $18.8bn K2 structured investment vehicle.

The bank has succeeded in reducing the SIV’s size from $31.2bn last July - and Dresdner’s offer aims to allow an orderly sale of the SIV’s assets to “ensure the repayment of all senior debt of K2.”

This is a vehicle, let’s remember, that has no direct exposure to subprime or mid-prime backed securities, or to CDOs of ABS or MBS. The entire portfolio is investment grade rated, with over 90 per cent of the assets rated either triple or double A.

But SIVs don’t work - period. And K2 was among those whose junior notes were downgraded to junk last December when S&P admitted that the vehicles were unlikely to survive, hit by a double whammy of falling values of the structured assets in their portfolios and a dearth of investor demand for their short-dated paper.

The support extended to K2, a typically macho name for these vehicles that have proved so fragile, removes one large chunk of the remaining SIV sector. Merrill Lynch in January estimated that K2, along with 10 other SIVs, had $21bn of medium-term notes to repay before April.

Related links
Allianz Q4 falls by half as subprime hits bank - Reuters
SIVs - the long and short - FT.com
StanChart abandons its $7bn SIV - FT.com