MAS DEL LIO: Citi's SIVs: Staving Off a Fire Sale

By RANDALL SMITH.- Executives of Citigroup Inc. say the giant bank has secured funding through year end for the $80 billion in structured investment vehicles it manages after selling $20 billion in assets since the midsummer credit crunch. The steps taken by the bank's alternative-asset management unit, run by former Morgan Stanley stock-division chief John Havens, mean the Citigroup SIVs can avoid the kind of forced selling at distressed prices begun by some other European SIV managers, the executives said.


European Selling

Yesterday, two European funds that had about $16 billion in assets last summer faced the need to begin selling, people familiar with the situation said. Tango Finance Ltd., one of the world's largest SIVs, has been selling assets, said a spokesman for Dutch bank Rabobank, which runs the SIV. It had $14 billion in assets as of July.

And another SIV, Rhinebridge, managed by an arm of German lender IKB Deutsche Industriebank AG, said yesterday it had called in a trustee to accelerate payments to its creditors, a situation that could force it to dump assets.

Citi's Asset Sales

Mr. Havens of Citigroup said in an interview the Citi SIVs have in the past week or so been able to sell "many billions of dollars" of short-term debt known as commercial paper "to top-tier-name institutions." He wouldn't give details, and declined to quantify the extent of losses, if any, on the asset sales.

Mr. Havens added that there has been a "modest improvement" in debt markets in the past few weeks.

The threat that Citigroup would have to step in to prop up the SIVs, possibly requiring the use of its balance sheet, has since mid-September prompted officials at the Treasury Department to help organize a $100 billion super-fund to buy such assets to reduce the impact of fire sales.

But the three banks leading the effort -- Citi, J.P. Morgan Chase & Co. and Bank of America Corp. -- say it could take 90 days to get up and running.

SIVs: A Crunch Primer

SIVs issue short-term commercial paper and medium-term notes and then use the money to buy higher-yielding, longer-term assets such as bank debt and residential mortgages. But their short-term funding dried up this summer as investors feared the impact of a steep downturn in the market value of some mortgage assets.

Earlier this week, Cheyne Finance PLC, a SIV managed by London-based hedge-fund group Cheyne Capital Management, halted payments to its creditors. Its receivers said they expect to complete a sale of its assets in the next two to three weeks. Cheyne had roughly $6.6 billion in assets as of August.