How Citigroup Reduced Its SIV Exposure

A story in today’s Financial Times discusses how Citigroup cut the size of its SIV outstandings from $83 billion to $66 billion. The details, while limited, still start to flesh out the picture.

From the Financial Times:

Citigroup has slashed the size of its struggling off-balance-sheet investment funds by more than $15bn in two months through quiet side deals with some junior investors, according to people familiar with the business.

The news that the troubled US bank has been finding ways to offload assets from its structured investment vehicles (SIVs) without resorting to fire sales comes as Société Générale on Monday became the latest bank to announce a bail-out for its own $4.3bn vehicle. SocGen’s decision follows similar moves by HSBC, Standard Chartered and Rabobank in the past fortnight.

The moves appear likely to reduce the demand for the so-called “super-SIV”, conceived by Citigroup, Bank of America and JPMorgan with the backing of the US Treasury as a buyer of last resort for the industry that would prevent fire sales….

Citi on Monday refused to comment on asset sales by its seven SIVs – all of which have been put on watch for downgrades by the rating agencies – but people familiar with the vehicles say their size has been cut from $83bn at the end of September to about $66bn largely by selling pro-rata portions of a SIV’s portfolio of assets to investors in the most junior notes at market values. Citi is also talking to some investors about directly swapping their holdings for underlying assets.

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  1. doc holiday

    December 4 – Bloomberg (Gonzalo Vina and Sebastian Boyd):”Citigroup Inc. lost more money than it made in the four years it traded financial instruments based on U.S. subprime mortgages, a senior company executive said. William Mills, chief executive of the U.S. bank’s markets and banking division in Europe, said… ‘Our losses greatly exceeded the profits we made in this field over several years,’ Mills said at a hearing of the Treasury Committee in the U.K. Parliament

  2. foesskewered

    Is this actually the new fire sale? The black rock fund was set up to prevent fire sales but frankly, the minute it operates, it will merely spark a wave of fear and the real fire sale will begin. So is Citi really conducting a “discreet fire sale”?

  3. Yves Smith

    doc holiday,

    You have been leaving numerous comments on recent posts. The text above was already included in an earlier post and is redundant.

    While I appreciate comments, 5 or 6 comments in succession, typically long pastes of material from other sources with little or not explanation, as you have been leaving, have the effect of crowding out others who might have observations that relate more clearly to the post. In fact, the number of comments I have gotten from regular readers has fallen off dramatically since you started your repeat posting.

    If you do not show greater consideration of other readers who also might have something to say and moderate the frequency of your comments, I will delete them.

  4. Yves Smith


    Too early to tell.

    The deal Citi did with its $15 billion looks like a cramdown: they got the note holders who were going to take losses regardless to take paper, which may have enabled everyone to mark it as generously as they thought they could, while a cash sale doesn’t allow for any room in finessing prices.

  5. Anonymous

    Market turmoil spreads to low-risk munis
    Issuance fell almost 50% in November as investors fretted about declining government revenue and stability of bond insurers

    By Aaron Elstein
    December 10, 2007

    “The market is reeling,” said Matt Fabian, managing director at research firm Municipal Market Advisors. “I’ve been in the muni market 15 years and have never seen anything like this.”


  6. Ginger Yellow

    It’s called vertical slicing. Basically you swap the investor’s capital notes for a proportional amount of the SIV’s assets. Fitch has a detailed discussion of the mechanics and implications in its most recent SIV market roundup, as does EuroWeek.

    “Is this actually the new fire sale? “

    Not at all. This is a controlled reduction of future funding needs based on current market values. They’re trying to avoid forced sales of the entire portfolio in a short period of time. Vertical slicing achieves that, or at least it’s part of the answer.

  7. foesskewered

    gunger yellow: vertical slicing

    isn’t that a kind of realization of assets? it sounds suspiciously like an indirect winding down of the vehicle, not just funding.

    do agree, cash settlements are final, but forcing them to take paper is kinda like issuing an IOU when you’re not too sure how much you can pay back.

  8. FG

    I’m not sure that discussing Citigroups financial jugglery is a meaningful exercise.

    Paraphrasing the Telegraph: ‘The strategic failure of a whole generation of economists, bankers, and policy-makers has been so enormous that it may now take a strong draught of socialism to save the Western democracies. We start – but may not end – with the nationalisation of Northern Rock.’

    I think this failure of economists, bankers and policy-makers is ultimately the failure of CITIZENS; because they were the ones who chose to be taken in by the theories of the moment. INdeed, citizens continue to do so by refusing to think for themselves.

    Maybe, while constantly pondering over the merit Mr Alan Greenspan periodic decisions, we lose sight of a larger reality: a problem of ECONOMIC GROWTHISM as a hidden ideology. We keep trying to excel the previous year’s economic growth in all sectors and continually grow, grow, grow… a problem of overconsumption by all of us — individuals, corporates, governments, all.

    One finds that a very large part of this overconsumption / overproduction is triggered by and funded by an overabundance of bank credit — out of all proportion to actual earnings and savings — that gives people the power to overspend and overconsume.

    So why get lost in further details? This is where the cancerous tumour, so to speak, lies. It can be clearly isolated from human flesh, which is spending that draws on current earnings. This is where we can start cutting away surgically, methodically, without hurting too many people.

    CONSUMER CREDIT — loans extended by banks for purchase of new vehicles and consumer appliances — is a major artery feeding this tumour. Easy loans warp our purchasing decisions, making our desires seem like needs. (A few calls from an aggressive telemarketer of car loans, plus some persuasion from my chartered accountant to increase my fixed assets, is all that is needed to make me feel that I NEED to step up from my family car to a monstrous four-wheel all-terrain vehicle.)

    CREDIT CARDS induce an unrealistic sense of economic power by enabling you to securely carry large amounts equivalent to many months’ or years’ earnings in your wallet.

    And when you do that, you are tempted to do all those wonderful, beautiful, “generous” things that you see in TV commercials like buying your wife a diamond solitaire, booking the Presidential suite for your wedding anniversary or surprising her with a couple of air-tickets to Paris.

    Consumer credit and credit-cards are the hot air causing the great big Economic Growth balloon to go up… and up… and up. Driven by this excessive consumer demand, a number of industries flourish, new corporates are created, and new factories get built, diversified, expanded, acquired… Stock markets rise majestically, and governments and the general public feels good.

    We aren’t only borrowing economically, we are BORROWING ECOLOGICALLY. Our governments are careful not to mention Economy and Ecology in the same breath. Economists who advise them are kept in a separate department from Ecologists.

    At some point, recession is bound to strike, simply because hot eventually cools, and what goes up must come down. But Economists persist in believing that Economic Growth can be indefinitely sustained — a huge urban myth!


    At an individual level, we should stop buying things with credit, and stop using our credit cards. It is worth cutting up our credit cards. Let us stop borrowing from the future, and let us do it NOW.

    And as a community of concerned citizens, let us lobby for a clampdown on consumer credit. Let us write to the government, to our Central Banks and to individual banks and bankers.

    Let each person in the banking industry be targetted with this message: Cap and roll back. Let us ask for a freeze of consumer credit at current levels this year, and a 50% reduction in the amounts of credit given each year.

    This would give the economy about three years to adjust to the changing scenario.

    Three years is 36 months — far more time than the economy and its stakeholders get for adjustment when the stock-markets crash or a recession hits. So why delay, postpone and vacillate? Let us attack the eye of the problem by fighting against the Creditcard & Consumer-loan culture that seems so inseparably a part of our lifestyle and way of thought.

    Of course this will result in a recession — bitter medicine that must be taken. How long shall we keep delaying taking it?

    Krishnaraj Rao

  9. Yves Smith


    I agree with your observation about the ideology of growth. It’s a value that no one (save the environmentally-minded) dares question. It is deeply ingrained in US business. I’ve been told that it is now impossible to make it into the senior ranks of large companies unless one pursues an aggressive growth plan.

    If you can get a copy (torrent files are available now and again) I strongly suggest you view the BBC documentary, “The Century of the Self.” It shows how businesses and governments used techniques from psychology to create a consumer culture.

  10. Ginger Yellow

    “isn’t that a kind of realization of assets? it sounds suspiciously like an indirect winding down of the vehicle, not just funding.”

    Of course it is. That doesn’t make it a fire sale, though. It means the SIV gets current market prices for a small portion of its assets, rather than needing and seeking bids on a much larger proportion, which would result in far greater realised losses.

  11. foesskewered

    Ginger Yellow (apologies for the misspelling earlier)
    Responded to your last comment in my latest blog post ( may have “realized” the assets from its point of view but have the investors any real chance to realize those assets?

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