Citi in $17.4B move on troubled assets
Citigroup Inc. said Wednesday it is acquiring the remaining $17.4 billion in assets held by structured investment vehicles (SIV) it already supports, as the bank moves to unwind the troubled funds.
Citigroup (C, Fortune 500) will move the SIV assets to a portfolio of assets held for sale. The transfer allows the funds to fully repay maturing debt obligations.
Citi is acquiring the assets at their current fair value, net of cash. The assets’ value fell to $17.4 billion from $21.5 billion as of Sept. 30. The value fell $4.1 billion, with $3 billion tied to asset sales and maturities, and the remaining $1.1 billion due to market value declines.
The transfer of assets out the SIVs is the latest step as Citigroup has been working to shut down the operations.
An SIV is a fund that borrows money by issuing short-term securities at a low interest rate and then lends that money by purchasing long-term securities at higher interest. That process can make a profit for its investors from the difference.
However, SIVs began to struggle as demand dried up for short-term bonds during the ongoing credit crisis cash advance in one hour. As a result, the value of SIV holdings fell sharply, forcing banks such as Citi that operated the off-balance sheet funds to provide them with financial support.
Citi, one of the biggest SIV holders, brought the SIVs onto its books last December.
The move comes as Citi works toward returning to profitability. Citi has been among the hardest hit banks by the ongoing credit crisis.
The bank has recorded four straight quarterly losses, including a loss of $2.8 billion during the third quarter. It has taken writedowns of more than $40 billion on its assets as their value has plummeted amid the ongoing mortgage and credit crisis.
Earlier this week, Citi announced it was cutting an additional 53,000 jobs on top of a previously announced cut of 22,000 positions in an effort to help reduce expenses. Citigroup had a work force of 375,000 at its peak at the end of 2007.
Shares of Citi fell 31 cents, or 3.7%, to $8.05 in morning trading.
Filed under: business by Wolf