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December 11, 2007

Citigroup To Cut Back On SIVs

by Stewart Douglas

Story link: Citigroup To Cut Back On SIVs

Investment bank Citigroup has today announced that it is to pull back its Structure Investment Vehicles (SIVs) by selling off some of the assets in light of rival bank Societe Generale’s announcedment yesterday that it would have to fork out over $4 billion to recover its investment fund in light of losses linked to the US sub-prime sector.

The under-fire bank announced that it is to cut out $15 billion worth of assets over the next two months from its SIVs with a view to minimising any potential losses from its sub-prime investment holdings following a string of high profile failures from similar funds across the globe.

The move is designed to lessen Citigroup’s exposure to the sector, and it is hoped to have the effect of reducing the overall potential for any further writedowns or rescue packages from the bank that was forced to take heavy writedowns over the last quarter as a direct result of its over exposure to the collapsed sector.

Market analysts have today suggested that the move could reduce the overall demand within the industry for the conceived ‘Super-SIV’, which would see Citigroup, JP Morgan and Bank of America line up its assets with the backing of the US Treasury to ensure any realised losses were not too great.

SIVs are investment instruments that allow individual investors to take on a share of overall securities, and they have been used extensively in connection with the now worthless US sub-prime sector.  However, with the domino effect of the collapse spreading throughout the industry, the Citigroup move can be seen as damage limitation, prior to the requirement for any further writedowns against its off-balance sheet investments.

 

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