Filed under: Deals, Citigroup Inc. (C), JPMorgan Chase (JPM), Bank of America (BAC), Economic data
The large planned $100 billion “Super Fund” being put together by Citigroup (NYSE: C), JP Morgan (NYSE: JPM) and Bank of America (NYSE: BAC) may only raise half of its goal. The reason appears to be that the institutions that should have needed the money have found other ways to handle their problems.
As The Wall Street Journal points out: “In some cases, the SIVs are trying to solve their own problems. Last week, HSBC (NYSE:HBC) of the United Kingdom became the first bank to bail out its own funds.”
Some of the mortgage-based securities in the SIVs have lost so much of their value that there are very few buyers for those assets, at least at prices close to their original values. SIVs that borrowed money to purchase assets now face the need to repay their loans, but only a fire sale would bring in money. And with asset values down, there is no guarantee that the SIVs can raise enough cash to meet their debt obligations.
The “Super Fund” is being set up to give short-term loans to SIVs to avoid the “fire sale” scenario. But if the funds are finding a way around their problems, the new lending pool may not be necessary.
All of this makes the “Super Fund” appear more like the way the press and some analysts have portrayed it — a bailout for Citigroup, which has a huge obligation to affiliated SIVs and is already injured by huge write-offs.
Perhaps once the fund is in place, Citi will be the only borrower. Since it is one of the participants in the “Super Fund,” it can loan the money to itself.
Douglas A. McIntyre is an editor at 247wallst.com.
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