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Friday 21 November 2008
Citigroup to Close 7 SIVs After Losses of US$2.2b
(NEW YORK) Citigroup will wind down seven failed off-the-books investment funds, ending chief executive Vikram Pandit’s attempts to salvage them after at least US$2.2 billion of writedowns this year.
(NEW YORK) Citigroup will wind down seven failed off-the-books investment funds, ending chief executive Vikram Pandit’s attempts to salvage them after at least US$2.2 billion of writedowns this year.
The company agreed to buy the remaining assets held by the structured investment vehicles, or SIVs, which have a current market value of US$17.4 billion, the bank said.
That’s down from US$49 billion last December, when Mr. Pandit pledged to support the SIVs - backed by bank debt and bonds linked to mortgages, student loans and credit cards - to minimise investor losses.
SIVs, which Citigroup invented in 1988, emerged 15 months ago as one of the first major strains in credit markets rocked by record high foreclosures on sub-prime mortgages. Their unravelling prompted US Treasury Secretary Henry Paulson to push for an industry-wide ‘super-SIV’ that ultimately was abandoned.
Citigroup’s SIVs, which went by names including Beta, Centauri and Sedan, stood at US$87 billion in August 2007, as a slump in credit markets eroded the value of their assets.
On Dec 13, two days after Mr. Pandit, 51, was named CEO, he announced a plan to take over the SIVs as Mr. Paulson’s proposal to prop up the market foundered. The SIVs were brought onto the bank’s balance sheet, so its earnings became vulnerable to subsequent declines in the market value of the assets.
During the first nine months of this year, Citigroup took US$2.2 billion of writedowns on the SIV assets.
As of Sept 30, the SIVs’ assets stood at US$21.5 billion of assets, net of cash, the bank said in Wednesday’s statement. Since then, about US$3 billion of assets have matured or been sold, and the market value has fallen by another US$1.1 billion, according to the bank.
Citigroup shares tumbled 23 per cent to a 13-year low on Wednesday as investors questioned the survival prospects of the the second-largest US bank by assets.
The shares closed down US$1.96 at US$6.40 on the New York Stock Exchange and have fallen 33 per cent this week as some investors concluded that plans to shed 52,000 jobs and cut expenses by one-fifth will not restore the bank to health.
The stock’s dive likely hurt some prominent investors, such as American Funds and AllianceBernstein, that bought more of the stock in the last quarter.
American Funds, a unit of Capital Group Cos, bought 26 million shares of Citigroup in the quarter that ended in September. It is now the biggest institutional shareholder of Citigroup and owned 426 million shares, or 7.8 per cent, of the banking firm as of Sept 30, according to Reuters data.
AllianceBernstein Holding LP raised its holdings of Citigroup by 20 per cent, or 22.7 million shares, in the latest quarter and owned 135.6 million shares, or 2.5 per cent, as of Sept 30.
American Funds and AllianceBernstein declined to comment on their portfolio holdings.
T Rowe Price Group Inc was another large backer of Citigroup, raising its holdings of the bank by 40 per cent, or 15.5 million shares, in the quarter that ended in September. T Rowe’s total holdings of Citigroup shares stood at 54.5 million, or one per cent, as of Sept 30.
T Rowe spokesman Edward Giltenan said that the firm had ‘significantly reduced’ its holdings of Citigroup in the current quarter, but declined to give details.
Prominent fund manager Kenneth Heebner’s Capital Growth Management LP is a new investor in Citigroup, buying 27.2 million shares, or a 0.5 per cent stake, in the quarter that ended in September. -- Bloomberg, Reuters
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Citigroup to Close 7 SIVs After Losses of US$2.2b
21 November 2008
(NEW YORK) Citigroup will wind down seven failed off-the-books investment funds, ending chief executive Vikram Pandit’s attempts to salvage them after at least US$2.2 billion of writedowns this year.
The company agreed to buy the remaining assets held by the structured investment vehicles, or SIVs, which have a current market value of US$17.4 billion, the bank said.
That’s down from US$49 billion last December, when Mr. Pandit pledged to support the SIVs - backed by bank debt and bonds linked to mortgages, student loans and credit cards - to minimise investor losses.
SIVs, which Citigroup invented in 1988, emerged 15 months ago as one of the first major strains in credit markets rocked by record high foreclosures on sub-prime mortgages. Their unravelling prompted US Treasury Secretary Henry Paulson to push for an industry-wide ‘super-SIV’ that ultimately was abandoned.
Citigroup’s SIVs, which went by names including Beta, Centauri and Sedan, stood at US$87 billion in August 2007, as a slump in credit markets eroded the value of their assets.
On Dec 13, two days after Mr. Pandit, 51, was named CEO, he announced a plan to take over the SIVs as Mr. Paulson’s proposal to prop up the market foundered. The SIVs were brought onto the bank’s balance sheet, so its earnings became vulnerable to subsequent declines in the market value of the assets.
During the first nine months of this year, Citigroup took US$2.2 billion of writedowns on the SIV assets.
As of Sept 30, the SIVs’ assets stood at US$21.5 billion of assets, net of cash, the bank said in Wednesday’s statement. Since then, about US$3 billion of assets have matured or been sold, and the market value has fallen by another US$1.1 billion, according to the bank.
Citigroup shares tumbled 23 per cent to a 13-year low on Wednesday as investors questioned the survival prospects of the the second-largest US bank by assets.
The shares closed down US$1.96 at US$6.40 on the New York Stock Exchange and have fallen 33 per cent this week as some investors concluded that plans to shed 52,000 jobs and cut expenses by one-fifth will not restore the bank to health.
The stock’s dive likely hurt some prominent investors, such as American Funds and AllianceBernstein, that bought more of the stock in the last quarter.
American Funds, a unit of Capital Group Cos, bought 26 million shares of Citigroup in the quarter that ended in September. It is now the biggest institutional shareholder of Citigroup and owned 426 million shares, or 7.8 per cent, of the banking firm as of Sept 30, according to Reuters data.
AllianceBernstein Holding LP raised its holdings of Citigroup by 20 per cent, or 22.7 million shares, in the latest quarter and owned 135.6 million shares, or 2.5 per cent, as of Sept 30.
American Funds and AllianceBernstein declined to comment on their portfolio holdings.
T Rowe Price Group Inc was another large backer of Citigroup, raising its holdings of the bank by 40 per cent, or 15.5 million shares, in the quarter that ended in September. T Rowe’s total holdings of Citigroup shares stood at 54.5 million, or one per cent, as of Sept 30.
T Rowe spokesman Edward Giltenan said that the firm had ‘significantly reduced’ its holdings of Citigroup in the current quarter, but declined to give details.
Prominent fund manager Kenneth Heebner’s Capital Growth Management LP is a new investor in Citigroup, buying 27.2 million shares, or a 0.5 per cent stake, in the quarter that ended in September. -- Bloomberg, Reuters
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