SuperSIV fund faces new challenges: UBS banker
LONDON (Reuters) - The increasing turmoil in the global banking industry is putting obstacles in the path of an $80 billion fund proposed in October to help ailing structured investment vehicles (SIVs), a senior UBS (UBSN.VX) banker said.
SIVs issue a mixture of short-term debt and capital and use the proceeds to invest in longer-term securities, mainly bank debt and asset-backed securities.
The vehicles, which hold around $320 billion of assets, have been hit as they have lost access to funding and the value of their investments has dropped as the fallout from the U.S. subprime mortgage crisis has spread.
Citigroup (C.N), Bank of America (BAC.N) and JP Morgan Chase (JPM.N) said they would set up the pooled asset fund to prevent SIVs being forced to sell off their assets -- mainly bank debt and asset-backed securities -- but gave few details on how it would work.
"I do think that the recent events of disclosure and management changes, and probably further bad news to come, makes the formation of this superfund more challenging today than it may have been a few weeks ago," Alex Wilmot-Sitwell, global co-head of investment banking at UBS (UBSN.VX), said at the Reuters Finance Summit in London on Monday.
"But I think it's probably something the banks will be spending a lot of time trying to make work," he said.
On Sunday, Charles Prince resigned as chief executive of Citigroup as the bank said it might write off $11 billion of subprime mortgage losses on top of a $6.5 billion write-down last quarter.
Five days earlier, Merrill Lynch & Co MER.N ousted Chief Executive Stanley O'Neal after an $8.4 billion write-down that was more than 50 percent higher than the bank had forecast.
The news has led to renewed turmoil in the equity and debt markets as investors fear there is further bad news to come.
Wilmot-Sitwell said it would be a "very good thing" if the fund could be made to work, in that it could provide liquidity to an illiquid market and help banks in valuing their holdings of debt instruments.
"One of the real problems at the moment is the huge complexity that everybody has in terms of determining the real value of the inventory of assets that they're sitting on," he said.
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