Citigroup Moves $49b in Assets to Own Balance Sheet; Could Be Last of the "SIV Problem"

By Jennifer Yousfi
Managing Editor

In a bold move by newly named Chief Executive Officer Vikram Pandit, Citigroup Inc. (C) will move $49 billion in assets from seven structured investment vehicle (SIV) funds onto its balance sheet. 

"Our team has made great progress managing the SIVs in a very difficult environment. After considering a full range of funding options, this commitment is the best outcome for Citi and the SIVs," Pandit said in a statement.

Citi is following in the recent footsteps of such large banks as HSBC Holdings PLC (HBC), Societe Generale SA (SCGLY), and others that have all recently transferred SIV assets onto their respective corporate balance sheets. The SIV problem has become so widespread that Citigroup, Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) had been in talks to create an SIV "superfund" worth $75 billion to $100 billion to rescue SIV funds in trouble. With this move, that bailout fund will likely no longer be needed.

"That was really the last major outstanding piece of the SIV problem," Peter Crane, founder of Crane Data LLC, told Bloomberg News. "The SIV problem is very close to resolution."

The Citi plan was announced late Thursday afternoon.  On Friday, Moody's Investors Service (MCO) downgraded Citigroup's debt to "Aa3" from "Aa2," citing concerns the move will have on the bank's capital ratio.

"Management will need to take [more] sizable write-downs against its subprime residential mortgage-backed securities and collateralized debt obligations portfolio," analyst Sean Jones predicted in a statement. 

But even with its recent write-down of subprime-related assets, Citigroup remains the largest U.S. bank by assets. And many believe the bank has the financial heft to absorb these SIV assets without doing too much harm to its overall financial strength.

The same day as the Moody's downgrade, Goldman Sachs Group Inc. (GS), the largest U.S. securities firm, raised Citi's debt rating to "outperform" from "in-line." Reuters reported that Goldman "believes the newly appointed Chief Executive Vikram Pandit will take appropriate action to raise capital levels in the first quarter, either through additional third-party investments, dividend cuts or reduced risk-weighted assets, or a combination of factors."

News and Related Story Links:

• Bloomberg:
  Citigroup Rescues SIVs With $58 Billion Debt Bailout

• Reuters:
  Goldman raises Citigroup debt to outperform

• MarketWatch:
  Citigroup says it will absorb SIV assets