Citigroup Announce SIV Acquisitions To Stabilise Debt Exposure

by Stewart Douglas

Story link: Citigroup Announce SIV Acquisitions To Stabilise Debt Exposure

Investment bank Citigroup has today announced it is to acquire no fewer than seven failing investment funds at an estimate $50 billion, with a view to recovering its losses within the financial markets, in the first high profile move of new executive Vikram Pandit.

The move today has been designed to help Citigroup counteract the potential for losses in SIVs in which it holds a stake, in order to avoid the bank from suffering any further losses from its sub-prime involvements.  It is thought that by looking to obtain control of the SIVs, Citi hopes to mitigate any future potential damages.

The move comes after Citigroup was forced to admit substantial losses from its initial sub-prime exposure over the third quarter, which saw its senior level management reshuffled and reserve funds heavily depleted to cover the losses realised.

It had been thought that Citigroup may have to initiate a fire sale, a term used to describe fast paced selling of assets, usually under market value, in order to recoup some of the lost funds.  However by making the investment in the SIVs the company is looking to minimise the potential for further losses and rebuild value in its SIV-based asset holdings.

SIVs have hit the media spotlight in recent weeks as a result of the substantial losses that have been realised across the sector.  SIVs, of structured investment vehicles, were set up largely in the US sub-prime market to take advantage of the opportunity of high risk high yield investment.

However with the collapse of the market many investment portfolios with holdings in SIVs have been seriously depleted, leading to widespread writedowns across the industry and substantial losses across both investment banks and company’s with investment divisions.