Seven investment vehicles run by Citigroup controlling roughly $100 billion of assets said on Thursday the credit quality of their portfolios remained very strong and they had succeeded in funding themselves in August.
The structured investment vehicles, or SIVs, said in unusually detailed regulatory filings that they have minimal exposure to U.S. subprime mortgages and remain confident in their business model.
Investors have grown concerned about SIVs and related vehicles known as commercial paper conduits because if the off-balance-sheet entities lose access to funding in the short-term debt markets, banks may be on the hook to bail them out.
Bailouts could force even more assets onto bank balance sheets that are already groaning from $300 billion of leveraged buyout loans that banks are still hoping to pass on to other investors, not to mention bad mortgages and other instruments hit by the subprime mortgage crisis.
Australian banks are moving billions of dollars of assets from SIVs onto their balance sheets, and Barclays unit Barclays Capital on Friday provided $1.6 billion of rescue financing to a type of SIV it helped set up.
U.S. securities regulators said on Wednesday they were looking at how off-balance-sheet structures like conduits could affect major U.S. investment banks. But U.S. Securities and Exchange Commission Chairman Christopher Cox added later he was satisfied that companies like Citi are in good shape.
The Citi SIVs -- Beta Finance Corp, Centauri Corp, Dorada Corp, Five Finance Corp, Sedna Finance Corp, Vetra Finance Corp and Zela Finance Corp -- said in a series of regulatory filings that the asset-backed commercial paper market was seeing unprecedented volatility but that the vehicles' portfolios remain robust.
The seven vehicles said that between them they had issued nearly $7.6 billion of commercial paper in August. They said they had sold about $5.3 billion of assets.
The SIVs said a market downturn would have to be four times as severe as what has already taken place for senior debt holders to realize a loss.
SIVs sell short-term debt like commercial paper and longer-term instruments, and use the proceeds to buy assets, typically consumer loans, asset-backed securities, bank debt, and other instruments. The vehicles generate returns by earning more on their assets than they pay to finance themselves.
But SIVs have faced a one-two punch lately as weakening commercial paper markets have boosted funding costs, and trouble in asset-backed security markets has eaten into the portfolios' asset values.
National Australia Bank Ltd, Australia's top lender, could potentially bring A$11 billion ($9 billion) of SIV assets back onto its balance sheet, while Australia and New Zealand Banking Group Ltd may bring back A$5.5 billion.
Commonwealth Bank of Australia Ltd said on Thursday its total exposure to asset-backed investment vehicles, called conduits, stood at A$4 billion, of which it has transferred A$1.35 billion to its own balance sheet.
Citi's seven vehicles said exposure to U.S. subprime mortgages was very low, at under $332 million across the vehicles, with two -- Vetra and Zela -- having no exposure.
The vehicles said that in 2004 they stopped buying types of bonds called collateralized debt obligations that repackage asset-backed securities, and had exposure of under $80 million, with Vetra, Zela and Sedna having no exposure.