VOL. 123 | NO. 228 | Thursday, November 20, 2008
Citigroup Acquiring Remaining SIV Assets
By STEPHEN BERNARD | AP Business Writer
NEW YORK (AP) - Citigroup Inc. said Wednesday it is acquiring the remaining $17.4 billion in assets held by structured investment vehicles it already supports, as the bank moves to unwind the troubled funds.
Citi will move the SIV assets to a portfolio of assets held for sale. The transfer allows the funds to fully repay maturing debt obligations.
The move comes as Citi, one of the hardest hit banks in the ongoing credit crisis, works toward returning to profitability. The bank – which earlier this week said it would cut an additional 53,000 jobs to reduce expenses – is also in the process of liquidating a hedge fund that's value plummeted 53 percent in October.
The bank has posted four consecutive quarterly losses, including $2.8 billion during the third quarter. Analysts widely expect it to post a loss during the fourth quarter as well.
Citi shares fell 97 cents, or 12 percent, to $7.39 in afternoon trading, after touching a 13-year low of $7.33 earlier in the session. Before Wednesday's decline, Citi shared had lost 39 percent of their value in November.
The transfer of assets out of the SIVs is the latest step in Citigroup's effort to shut down the SIV operations.
Citi is acquiring the SIV assets at their current fair value, net of cash. The assets' value fell to $17.4 billion from $21.5 billion as of Sept. 30. The $4.1 billion drop mostly reflects $3 billion tied to asset sales and maturities, with the remaining $1.1 billion due to declines in market value.
An SIV is a fund that borrows money by issuing short-term securities at a low interest rate and then lends that money by purchasing long-term securities at higher interest. That process can make a profit for its investors from the difference.
However, SIVs began to struggle as demand dried up for short-term bonds during the ongoing credit crisis. As a result, the value of SIV holdings fell sharply, forcing banks such as Citi that operated the off-balance sheet funds to provide them with financial support.
The value of that support in Citi's case, currently pegged at $6.5 billion, will be returned to Citi once the asset transfer is complete.
Citi, one of the biggest SIV holders, brought the SIVs onto its books last December.
As Citi completes the SIV transaction, it is also liquidating a hedge fund operated by its alternative investment unit, a Citi spokesman said. The Corporate Special Opportunities fund, based in London, invested mostly in European leveraged loans and corporate debt.
The market for those assets has shrunk drastically in recent months amid the global market turbulence, leading to the sharp decline in value and the subsequent liquidation of the fund.
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