SIV fund support grows with PIMCO, Fidelity: Draghi
WASHINGTON (Reuters) - Support for a so-called super SIV fund designed to ease the stress of the subprime meltdown appeared to grow on Friday as a top global finance official said two giant investment funds had thrown their weight behind the endeavor.
Fund giants PIMCO and Fidelity have joined the so-called super SIV fund set up by three big U.S. banks, boosting confidence in the plan, Bank of Italy Governor Mario Draghi said at the close of a meeting of finance officials from the Group of Seven rich industrialized nations.
Draghi said U.S. Treasury Secretary Henry Paulson had discussed the fund with officials attending the meeting of central bankers and finance ministers from the United States, Canada, Italy, France, Germany, Britain and Japan.
"Paulson has done a short briefing on the SIV fund," Draghi told journalists. "PIMCO and Fidelity have joined."
Bank of America Corp (BAC.N), Citigroup Inc (C.N) and JPMorgan Chase & Co (JPM.N) announced on Monday a plan for a fund aimed at preventing the dumping of billions of dollars of bonds within Structured Investment Vehicles, or SIVs, that are linked to subprime mortgages and other debt.
PIMCO is the world's biggest bond fund and Fidelity is the world's biggest mutual funds firm. Calls to Fidelity and PIMCO were not immediately returned.
Paulson's lobbying efforts in support of the fund were expected to continue over the weekend as top bankers gather on the G7 sidelines for a meeting of the Institute for International Finance, a global bankers' association.
Paulson is likely to meet with the head of Deutsche Bank (DBKGn.DE), Josef Ackermann, head of the IIF and host of the meeting. Deutsche Bank is thought to be reluctant to join the fund, which some say will primarily benefit Citibank.
PIMCO's support comes as a surprise after Bill Gross, the chief investment officer of Pacific Investment Management Co. or PIMCO, criticized the effort as "a little lame" in a television interview.
Draghi, however, said the presence of the two giants would boost confidence. "Some have criticized the fund because they think it could be a way to delay the realization of losses but with the presence of PIMCO and Fidelity, we are more confident," he said.
"We know that it will take a lot of time and work to get the fund working."
U.S. Treasury officials brokered talks among big banks that led to the plan to create the fund, which is aimed at heading off the possibility the SIVs may have to dump billions of dollars of repackaged loans onto financial markets.
A fire-sale of assets could lift borrowing costs globally, trigger big losses from investors and force banks to further write down some holdings on their balance sheets. Such sales could trigger huge losses for banks, and in the worst-case scenario tip the U.S. or Europe into recession.
