SIV fund meeting

by Richard Kilner

Story link: SIV fund meeting

Today three major American financial institutions, Bank of America , Citigroup and JPMorgan Chase, will meet with potential contributors to the M-LEC (Master Liquidity Enhancement Conduit) fund.

The fund, which is managed by BlackRock, is designed to assist the short-term debt market.

Roger Smith, an analyst at investment bank Fox-Pitt, has stated that BlackRock’s involvement as the fund’s management would definitely boost the scheme by bolstering its credibility.

The fund also has the backing of US Treasury Secretary Henry Paulson.

The big three banks want to raise $75bn or more to put into the fund, a figure which includes their own unspecified contributions.

M-LEC is one of two schemes designed to help counter the adverse affects of the US subprime mortgage crisis and the ensuing credit crunch, both of which are approved of by the present administration.

Last week President Bush announced that certain bonds would be frozen for five years to prevent foreclosures.

The fund will purchase assets from SIVs (Structured Investment Vehicles) to kickstart the market. Otherwise, up to $300bn of assets would have to be given up to pay back debts. The purpose of SIVs is to acquire the capital to purchase high-yield assets, funded by short-term debt.

The market’s recent difficulties are due to the fact that some SIVs are contaminated with subprime-related securities, which, naturally, has troubled investors.

Josh Rosner, an MD at Graham Fisher, is not optimistic about the M-LEC’s prospects. He believes that, with the exception of those who want the fund to succeed to help them out of a financial problem, no-one would invest without acquiring fees.