AMSTERDAM, Dec 5 (Reuters) - A structured investment vehicle (SIV) managed by Dutch bank Rabobank [RABN.UL] and Citigroup (C.N) has sold almost half its assets, 4.5 billion euros ($6.6 billion), as the fund could not find sufficient refinancing, Rabobank said on Wednesday.
“The market has dried up. It is all related to what is happening in the United States,” a Rabobank spokesman said, confirming a report in Dutch daily Het Financieele Dagblad about the declining size of the fund, called Tango Finance.
The fund currently holds about 5.5 billion euros in assets, down from 10 billion euros in the summer, and could reduce its holdings further to reduce investment risks, the spokesman said.
“Basically, what Tango is doing now is called unwinding,” he said, adding that the market value of Tango’s currently held assets is about 97 to 98 percent of their nominal value.
SIVs, off-balance sheet vehicles set up mainly by banks, issue a mixture of short-term senior debt and longer-term junior capital notes and invest the proceeds in long-term securities, mainly bank debt and asset-backed securities.
They have been hit by a double blow as their access to financing has dried up in the credit turmoil and the value of the securities they hold has fallen sharply.
The spokesman declined to say whether Tango has been making losses or whether cooperatively-owned Rabobank would put the SIV’s assets on its balance sheet if they could not be sold.
He declined to say whether Citigroup, the largest bank in the United States, had invested in the fund.
A spokeswoman for Citigroup, which wrote down $6.8 billion in the third quarter and could face more losses on assets, said: “Citigroup has no responsibility for the funding of Tango.”
Some banks have been forced to put credit-related assets on their balance sheet or take billions of dollars in losses on these assets due to defaults on U.S. subprime home loans and a subsequent credit squeeze.
Europe’s biggest bank, HSBC Holdings Plc (HSBA.L), said last week it would consolidate $45 billion in SIV-related assets onto its balance sheet, while U.S. mortgage lender Wells Fargo (WFC.N) said it would take a $1.4 billion charge.
Rabobank, one of the largest retail banks in the Netherlands with more than 9 million clients, holds 10 percent of Tango’s junior debt notes, the spokesman said.
Rabobank has no obligation to fund Tango if a bail-out were necessary, but analysts say banks might volunteer support to their SIVs to avoid damage to their reputation.
Tango’s direct and indirect exposure to the U.S. subprime market — home loans made to borrowers with poor credit records — was less than 0.1 percent of its total investments and rated AAA, Rabobank has said.
Rating agency Moody’s Investors Service said last week it was reviewing Tango’s Aaa rating as the vehicle’s net asset value — a measure of the value of the junior debt — declined to 69 percent from 88 percent since a review on Sept. 5.
“The current level of net asset value is inconsistent with Aaa/Prime-1 ratings,” it said.
Moody’s said it would consider possible mitigating factors and expected to conclude its review within a week.
The Rabobank spokesman said currently 65 percent of Tango’s assets were rated AAA, 98 percent AA or higher, and 100 percent was rated A or higher, but he acknowledged this could change. (Editing by Matthew Tostevin)