Friday, 14 December 2007

Citi's Moves May Signal End of the Super SIV

Vikram Pandit, the new CEO has dashed into the fray and decided to bring Citi's $49 billion worth of SIV;s back on balance sheet. Pandit has the luxury of claiming that the SIV debacle didn't happen on his watch so why not kitchen sink the results in the next quarters and start fresh. From CNBC Money:

Citi plugs $49B in leaky SIVs
Citigroup Inc. said Thursday it plans to assume control of the seven "structured investment vehicles" the bank advises to help them repay their debts.

Citigroup will provide a "support facility" for its seven SIVs with investments totaling $49 billion and incorporate them onto its balance sheet. The bank previously said it had no plans to bring the SIVs onto its books....

....Citigroup will bring the SIVs onto its balance sheet in order to protect their credit ratings and give them time to sell their assets, the bank said.

After Citi's announcement, Moody's downgraded Citigroup's long-term credit rating to "Aa3" from "Aa2," and lowered Citibank's Bank Financial Strength Rating to "B" from "A-," citing the view that Citigroup's capital ratios will remain low.

The company's Tier 1 capital ratio - its ratio of cash to debt for regulatory purposes - was about 7.3 percent as of Sept. 30. Citi said adding the SIVs to the company's balance sheet would reduce the ratio by 0.16 percentage point but it still expects to return to its targeted ration of 7.5 percent in the first half of 2008.

The bank said it expects its SIVs to be able to meet their liquidity needs, which total $35 billion, through the end of next year. Citigroup expects to provide "little or no" financing.

"After considering a full range of funding options, this commitment is the best outcome for Citi and the SIVs," said Vikram Pandit, who was named Citigroup's chief executive officer Tuesday.

Pandit is demonstrating he is a man of action which can only be good news, however I have just one question, how will Citi raise it's capital ratio back up to it's target of 7.5%? Cut dividends, capital injections, both?