December 6, 2007
'Super Fund' for SIVs may not be so Super after all
'Super Fund' for SIVs, Hoped for $100 Billion, May Be Half the Size - WSJ.com
The super fund is being reduced in size due to "lack of interest from other banks". Well, lets call it like it is, banks saw little benefit in joining the fund. The super fund is akin to collecting trash from the neighbourhood houses and then pile it together in the middle of the street. Instead of smaller ones spread across, it is just one big load of stinky garbage piled together.
Banks ought to do what HSBC done by taking these obligations onto their balance sheet. Off course Citi can't do that without crippling its operations. Citi has mush more exposure than HSBC to SIVs, Citi has $83billion compared to HSBC's $45 billion, and a much weaker capital position. In addition many of Citi's SIVs has been put on negative credit watch by the rating agencies and taking them back onto Cits' books mean a higher borrowing costs to the bank.
Citi has been trying to shore up its capital by: 1. selling its real estate assets, and 2. raising capital from equity sale.
Complicating things at Citi is the lack of leadership. So far the bank has not found a successor to the former CEO Chuck prince, and it does not look like there is any one on the horizon.
Citi can be a value idea similar to Wells Fargo in the 1990s when housing prices tumbled and made the bank in need of capital. But to properly evaluate this more one need more information about the bank and its liquidity, which is hard to ascertain with all of this off balance sheet entities