UPDATE 2-Citigroup buying back remaining SIV assets

(Adds background on SIVs, detail on moves, byline)

By Dan Wilchins

NEW YORK Nov 19 (Reuters) - Citigroup Inc (C.N) said it agreed to buy $17.4 billion of assets remaining in a series of funds known as structured investment vehicles, essentially ending the funds that it has been supporting since December 2007.

Citigroup has agreed to pay back the SIVs' $17.2 billion of remaining borrowings in exchange for taking on their assets. The transaction will be nearly cashless.

Removing the assets from the vehicles gives Citigroup more flexibility in managing them. SIVs were put together with strict requirements for selling assets when their market value declined too much. With asset values having fluctuated wildly since September, the bank was looking for more leeway in deciding when to sell assets.

The deal is the latest step in the saga of Citigroup's SIVs, which contributed to extreme market turmoil in the second half of 2007 when investors feared all SIVs would lose access to funding and be forced to dump assets en masse.

Since last year, a number of other Citigroup funds have run into trouble. Old Lane, the hedge fund co-founded by Vikram Pandit before he became Citigroup's chief executive, faced redemption requests from nearly all investors unaffiliated with the fund earlier this year. And the Financial Times reported late Tuesday that the bank is liquidating its Corporate Special Opportunities fund.

Citigroup is facing other difficulties, too. The bank is facing mounting losses from mortgages, credit card loans, and complex debt instruments. Fox-Pitt Kelton analysts wrote on Wednesday that it expects the bank to take $3 billion of net writedowns in the fourth quarter.

On Monday, the bank announced plans to eliminate 52,000 jobs by early next year to cut costs as it posts losses. The company's shares dropped 7.7 percent on Wednesday to $7.65, a fresh 13-year low, as major bank stocks broadly fell. Citi's market value is now less than that of U.S. Bancorp (USB.N), a regional bank with an eighth of Citi's assets.

The former SIV assets will now be accounted for on an "available for sale" basis, meaning changes in their value will affect the company's balance sheet equity but not its earnings. Previously, changes in their value could affect Citigroup's earnings.

The transaction will reduce Citigroup's GAAP assets by $6 billion and boost risk-weighted assets by about $2 billion.

PROVIDING SUPPORT

Citigroup agreed in December 2007 to support the SIVs, which at the time had about $49 billion of assets. At one point the bank's SIVs were off balance sheet entities holding some $100 billion of assets. That support included Citigroup's willingness to buy debt issued by SIVs. SIV assets and liabilities were included on Citigroup's balance sheet after this agreement.

SIVs borrow in short-term and medium-term debt markets in order to fund longer-term assets. As commercial paper markets dried up last year, investors grew concerned that SIVs would have to liquidate nearly $400 billion of assets, further pressuring bond markets.

Citigroup, JPMorgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N) last year had planned to set up a bailout fund to rescue the SIV market, but those plans were abandoned due to lack of demand in late December. (Additional reporting by Jonathan Stempel; editing by John Wallace)