Europe's largest bank, HSBC Holdings, said on Monday it would bail out its two structured investment vehicles (SIVs) by taking US$45 billion in assets onto its balance sheet.
The move was an attempt to repair investor confidence and create a long-term solution for assets that have become difficult to value or sell since problems with subprime mortgages in the US sent jitters through the global credit markets.
HSBC said in a statement on Monday that investors in the two SIVs -- Cullinan Finance and Asscher Finance -- would be able to swap their holdings for debt issued by a new company backed by HSBC loans.
The bank said that it did not expect the move to have a material impact on its earnings or capital strength.
Three institutions -- Bank of America, Citigroup and JPMorgan Chase -- are working to set up a US$75 billion fund to stabilize the SIVs, which use short-term financing to buy higher-yielding and longer-term debt and are among the biggest buyers of pools of mortgages and other complex, asset-backed securities.
The bailout means HSBC will not participate in the larger SIV fund, a bank spokesman said. Instead, HSBC expects its action to "set a benchmark and restore a degree of confidence to the SIV sector, while providing a specific solution to address the challenges faced by investors in Cullinan and Asscher," Stuart Gulliver, HSBC chief executive of corporate and investment banking, said in the statement.
The step could prompt other banks to seek similar solutions, some analysts said.
While HSBC may have found a way to bolster investor confidence in its SIVs, some bank executives were still concerned about additional write-downs, especially after HSBC said earlier this month that losses in the housing market were spreading to credit card and other consumer loans, forcing it to set aside US$3.4 billion, more than it had forecast four months earlier.
HSBC may have to set aside an additional US$12 billion for bad debts, Roy Ramos and other Goldman Sachs analysts wrote in a note, lowering their recommendation for the stock to sell, from neutral.