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December 10, 2007

Societe Generale Announce $4bn SIV Writedown

by Stewart Douglas

Story link: Societe Generale Announce $4bn SIV Writedown

French investment bank Societe Generale has today announced it is to take a $4.3 billion writedown to help save its failing sub-prime structured investment vehicle, becoming the latest in a long line of investment banks to suffer in the wake of the collapse of the sub-prime lending sectors in the US.

The structured investment vehicle, which splits and repackages sub-prime loans for individual investment purposes, has taken a hit over the decline in its value of assets linked to sub-prime loans over the course of the summer.  As a result, the bank has announced it will provide the necessary funding to support the vehicle through the current set of circumstances.

The announcement comes today following just hours after investment bank UBS was forced to admit $10 billion in losses from its sub-prime exposure, as yet more institutions feel the heat from the collapse of the sub-prime sector and the credit crisis.

According to the announcement today, Societe Generale is to rescue its SIV, Premier Asset Collateralised Entity, of which some 12% is accounted for by now worthless sub-prime debts.  The rescue operation will require a direct cash injection of funds in order to cover the losses from the exposure in order to avoid triggering certain debt protection provisions, which could see an appointment of a trustee.

The move follows a warning from analysts Standard and Poor which suggested that trustee appointment would be the next logical step for the fund unless it was to be saved by the bank, which involves adoption of assets in recognition of the required funds from Societe Generale.

It remains to be seen whether the writedown will seriously affect the profits of the investment bank, and whether the SIV can recover from the current dire financial circumstances it faces.


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