Citigroup Inc. announced that it is winding down its structured investment vehicles by buying back their remaining assets at fair value.
The bank said Wednesday that, in a nearly cashless transaction, it has committed to acquire the remaining assets of the SIVs at their current fair value, estimated to be approximately US$17.4 billion, net of cash, as compared to US$21.5 billion at September 30.
The decline primarily reflects asset sales and maturities of US$3.0 billion and a decline in market value of US$1.1 billion since the end of the third quarter 2008, it noted. The SIVs have been selling assets as part of an orderly asset-reduction plan to fund maturing debt obligations on a timely basis, and have reduced long-term assets from US$87 billion at the end of July 2007 to US$17 billion currently, it said.
Citi has been providing financial support to the SIVs. The current fair value of such support is US$6.5 billion and is expected to be repaid upon completion of the transaction, it said. This transaction will result in the SIVs’ having sufficient funds to repay maturing senior debt obligations. Citi’s net incremental funding requirement at closing is estimated at US$300 million.
As a result of the transaction, Citi’s GAAP assets will be reduced by approximately US$6 billion and risk-weighted assets will be increased by approximately US$2 billion.
On the news, Fitch Ratings downgraded certain Citigroup SIVs. However it said that the financial impact of this action on Citi is modest. The Citi-sponsored SIVs have already been consolidated onto Citibank’s balance sheet and currently represent approximately 1% of the consolidated balance sheet, it noted.
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Citigroup buying back remaining SIV assets
- By: James Langton
- November 19, 2008 November 19, 2008
- 13:50