StanChart drops SIV restructuring plan

By Clara Ferreira-Marques and Natalie Harrison

LONDON (Reuters) - Standard Chartered on Wednesday dropped initial rescue plans for its $7 billion Whistlejacket structured investment vehicle which was forced into receivership last week, drawing criticism from analysts.

Asia-focused bank Standard Chartered said its decision to drop the plans was the result of a number of factors including "the pace of continuing deterioration in the market for certain asset classes".

Receivers Deloitte said they were continuing to work on a potential restructuring and emphasized that a fire sale of Whistlejacket's assets was not under consideration.

Other banks have stepped in successfully to rescue their SIVs, which raise short-term debt and invest the proceeds in longer-term securities. The vehicles have faced problems as the subprime crisis has led funding to dry up at the same time as the value of their assets has dropped sharply.

HSBC said just last week that investors had unanimously agreed a proposal to restructure its Cullinan structured investment vehicle (SIV). And Citigroup is setting up a $3.5 billion facility to support six of its SIVs in order to protect creditors and short up debt ratings.

This is the second time Standard Chartered has had to scrap plans aimed at supporting its SIV. Its first proposals to provide liquidity, announced in January, lapsed in February as the vehicle went into receivership.

Standard & Poor's warned last week that a default was imminent on some of Whistlejacket's debt after the receiver chose not to make a payment on February 15. There is a three-day grace period during which payment can be made.

Mark Harmer, head of credit research at ING, said Standard Chartered's decision was unlikely to hurt sentiment or have a significant financial market impact. But it did cast a shadow over the bank's reputation, he said.