HSBC in $35bn rescue effort

27 November 2007

British banking giant HSBC has provided a multi-billion-dollar lifeline to two structured investment vehicles (SIVs), by taking them onto its own balance sheet.

Around $45 billion of assets belonging to Cullinan Finance and Asscher Finance will be transferred onto the bank's balance sheets and HSBC will inject an extra $35 billion into the two funds.

The bank hopes the move will mean the SIVs will not have to sell off quality assets or go into liquidation, although investors will still be responsible for defaults on the assets.

Investors in the HSBC-managed funds have also been offered the chance to re-invest their income and mezzanine notes in new SIVs set up and funded by the British bank.

SIVs have been massively hit by the credit crunch, as reinvesting in the short-term debt that finances the funds becomes a less popular choice in the wake of the sub-prime crisis.

HSBC's move rejects recent efforts led by Citigroup, JPMorgan Chase and Bank of America to create a 'Super SIV' that would buy up the funds' assets until the market stabilises.

"By doing it this way, HSBC has got control of everything rather than putting it into the Super SIV," Gordon Scott, a managing director in Fitch Ratings' financial institutions group, told the Guardian.

"Something like the Super SIV is going to take some time to be properly structured and set up. There has been a repricing of risk and so it is difficult to see the SIV market coming back in its previous form," he added.

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