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Monday, November 26, 2007

The First SIV Goes On Balance Sheet

HSBC Will Take on $45 Billion of Assets From Two SIVs (Update2): “HSBC Holdings Plc, Europe's largest bank, will add $45 billion of assets to its balance sheet by consolidating two structured investment vehicles it manages.

Investors in the SIVs will be able to exchange their holdings for debt issued by a new company, backed by loans from HSBC, the London-based bank said in a statement. HSBC doesn't expect any “material impact'' on its earnings or capital strength, according to the statement.

HSBC's decision reduces the worldwide assets in SIVs as U.S. lenders led by Bank of America Corp. seek to persuade competitors to help finance an $80 billion bailout of the companies. HSBC's Cullinan Finance Ltd. and Asscher Finance Ltd. have more than $34 billion of senior debt, making it the second-largest bank sponsor of SIVs after Citigroup Inc.”

How taking onto your balance sheet an unexpected $45 billion isn’t going to have a ‘material impact’ is beyond me.

Bank of America Takes Lead in Backing `SuperSIV' Fund (Update1): “Bank of America Corp., the nation's second-largest bank, will lead efforts by Citigroup Inc. and JPMorgan Chase & Co. to convince smaller competitors to help finance an $80 billion bailout of short-term debt markets.

The campaign starts this week with New York-based Citigroup and JPMorgan in supporting roles to Charlotte, North Carolina- based Bank of America, said two people with knowledge of the matter, who didn't want to comment publicly before the plan is formally announced.

The “SuperSIV” fund, backed by U.S. Treasury Secretary Henry Paulson, would buy assets from so-called structured investment vehicles, whose $300 billion of holdings include corporate and mortgage debt in danger of default. Analysts including Richard Bove of Punk Ziegel & Co. have criticized the proposal because it may saddle new participants with losses created by their bigger rivals.

``Why should we put something on our balance sheet that is going to result in further writedowns?'' is how most contributors will respond, Bove said in an interview. ``The job of the Treasury isn't to go out and defraud investors.''

Bank of America, Citigroup and JPMorgan, the three largest U.S. banks, want SuperSIV in place by year-end because some SIVs haven't been able to trade, people familiar with the fund said. BlackRock Inc., the biggest publicly traded U.S. money manager, probably will manage the fund, said a person with knowledge of the plan.”

Bad ideas are hard to kill. With HSBC moving their SIV assets onto their own balance sheet, the likelihood of the Super SIV ever seeing the light of day is greatly reduced.

Northern Rock Favors Virgin Offer; Treasury Approves (Update3): “Northern Rock Plc, the U.K. mortgage lender bailed out by the Bank of England two months ago, said the government backed Richard Branson's Virgin Group Ltd. as the preferred bidder for the company.

Northern Rock rose as much 57 percent in London trading after saying today in a statement that Virgin offered an immediate repayment of 11 billion pounds ($22.7 billion) toward about 25 billion pounds lent by the central bank. Virgin would also inject 1.3 billion pounds into Northern Rock, half funded by new shares offered at 25 pence each to existing holders.

“It's an indicative proposal and not an offer, and could leave the door open to a counter-bid,'' said Simon Willis, a London-based analyst at NCB Stockbrokers. “That's why I can see the shares trading higher.””

An acquisition by Virgin at these prices would definitely act as a catalyst for a short lived ‘relief’ rally in the broader indices.

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