(Adds dropped word “paper” from “commercial paper market” in next to last paragraph)
By Neil Shah and Patrick Rucker
NEW YORK, Oct 12 (Reuters) - U.S. Treasury officials are looking into ways to help investment vehicles called SIVs that have been battered by this summer’s credit crisis, sources familiar with the situation said on Friday.
Treasury representatives met about two weeks ago with sponsors of these vehicles, Wall Street banks and investors to discuss “how to alleviate some of the issues in the SIV market,” one source informed of the meeting by participants said.
SIVs are investment vehicles that raise cash by issuing short-term debt called commercial paper and use the proceeds to buy higher-yielding securities, often tied to U.S. mortgages. The vehicles, often set up by banks, make money by pocketing the difference between their funding costs and investment returns.
One plan that was discussed at the meeting involved setting up a “super fund” where “each SIV in the market could pledge up to one-third of its assets and get financing,” the source said.
A government source also confirmed that there is a Treasury initiative to ease funding costs in the SIV market.
The vehicles have been unable to sell new commercial paper for months as investors fearful of contagion from subprime mortgages have shunned most types of asset-backed commercial paper. As a result, many SIVs have run into trouble.
Jennifer Zuccarelli, a Treasury spokeswoman, said, “Treasury is always meeting market participants and monitoring market events,” but had no comment on any specific Treasury initiative.
Treasury officials also separately met with Wall Street bank treasurers a few days after the SIV meeting to discuss the state of the U.S. asset-backed commercial paper market, the source said.
A spokesman for JPMorgan Chase (JPM.N) declined to comment. A spokeswoman at Citi did not return a call seeking comment.