Although $4.3 billion is not a large amount of credit by large bank standards, Societe Generale’s decision to take assets of affiliated assets on to its balance sheet is further confirmation that the SIV rescue plan is coming too late to have any impact.
Societe Generale SA, France’s second-biggest bank by market value, will bail out its structured investment vehicle by taking on $4.3 billion of assets to avoid a fire sale.
The rescue will cause Societe Generale’s ratio of Tier 1 assets, a measure of financial strength, to fall by 5 basis points, the Paris-based lender said today in an e-mailed statement, citing “market conditions” for the decision. Asset- backed securities account for 75 percent of the holdings and debt issued by financial companies make up the rest.
Standard & Poor’s warned on Dec. 7 that Societe Generale’s Premier Asset Collateralized Entity Ltd. SIV was close to breaching capital tests that would trigger the appointment of a trustee to protect senior debt holders. The value of the bank’s own $103.5 million investment in capital notes sold by the SIV slumped to $27.6 million at the end of November, the bank said…
Bonds backed by home loans, including subprime debt, comprise 12 percent of PACE’s holdings, Societe Generale said. Collateralized debt obligations make up another 19 percent. Debt guaranteed by monoline bond insurers accounts for 18 percent and bonds backed by other debt such as student loans made up 26 percent.