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February 12, 2008

Standard Chartered SIV calls in receivers

by Gill Montia

Story link: Standard Chartered SIV calls in receivers

Standard Chartered, the bank with a strong presence in emerging markets, has called in receivers to manage its structured investment vehicle (SIV), Whistlejacket.

The £3.6 billion SIV has been experiencing difficulties in refinancing its short-term debt since the credit squeeze began last year.

The investment vehicle holds collateralised debt obligations (CDOs), which are funds that contain bonds, some of which are backed by US mortgages seen as risky.

Financial institutions that have SIVs do not include them on their balance sheets because they are acting as sponsors, receiving a fee for managing the SIV as well as making profit.

SIVs use short-term debt to invest in long-term securities and the profit is made from the difference between the short-term borrowing rate and long-term returns.

However, since the turmoil on the money markets, analysts have been questioning the value of the underlying assets of many SIVs.

The value of Whistlejacket’s assets has now fallen to less than half of the amount of its start-up capital, prompting the bank to call in receivers, which will be formally appointed in due course.

It is understood that Whistlejacket’s US sub-prime mortgage debt is small-scale; however, there is a possibility that receivers will order the sale of its investments.

Analysts have expressed concerns that if Whistlejacket’s assets are sold cheaply, other SIVs will be forced to downwardly revalue their assets.

 

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