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Citigroup says it has enough money to cover SIV assets

Citigroup Inc confirmed on Friday it had secured enough funding to cover the US$80 billion in assets held in its structured investment vehicles (SIV) -- at least until the end of the year.

This meant Citigroup will not have to sell the debt underlying the seven SIVs it manages at bargain-basement prices, which would translate to losses for the bank.

SIVs are vehicles sponsored by banks that sell short-term debt -- such as unsecured commercial paper -- to investors such as hedge funds.

The banks use the proceeds to buy longer-term assets, like mortgage-backed securities.

SIVS normally generate money through fees and the difference between short-term and long-term rates. But in August, demand for short-term assets dried up, creating liquidity problems for SIVs.

"We've seen the market for third-party funding improve," said Jon Diat, spokesman for Citigroup's alternative-asset management unit. He said Citigroup has found more than US$1.5 billion in funding from third-party sources in the last week.

He would not say who the buyers were, but said they were "top-tier name institutions."

Citigroup, along with JPMorgan Chase & Co and Bank of America Corp, announced on Monday a plan for a fund to buy distressed securities in the credit market.

The fund was structured by Citigroup's markets and banking unit, whose plan was solicited by the Treasury Department to avoid a "fire sale" of asset-backed securities.

Citigroup's alternative-asset management unit, which manages the bank's SIVs, has not yet decided if it will draw from the fund.

Citigroup said it is under no contractual obligation to provide liquidity facilities or guarantees to the SIVs it advises and that it will not consolidate the assets of the SIVs. But it said it will "from time to time" provide liquidity to the SIVs it advises "on an arm's length basis."
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