New Citigroup head: Bank to bail out 49 billion in credit crunch
New York (dpa) December, 14, 2007- Just two days after taking over, Citigroup's new head Vikram Pandit has taken the bull by the horns, with the giant bank saying it would assume 49 billion dollars of debt in the country's unravelling home-mortgage credit meltdown.
The decision to bring the so-called structured-investment-vehicles (SIV) onto the company's balance sheets marked a turnaround for Citigroup, which in November said it would not consolidate the lagging SIVs.
The SIVs represent investments tied to the loans to borrowers with poor credit, the so-called subprime lending practice that has seen tens of thousands of homeowners default on their mortgages.
"After considering a full range of funding options, this commitment is the best outcome for Citi and the SIVs," Pandit said in a statement late Thursday.
The move by Citigroup follows HSBC Holdings Plc, Societe Generale SA and WestLB AG in bailing out SIVs to avert fire sales of assets, Bloomberg financial news agency reported. The funds sell short-term debt and invest the proceeds in higher-yielding securities - a vehicle invented by Citigroup in 1988.
On Wednesday, the world's leading central banks launched further co-ordinated moves to inject cash into the banking system to help fight the credit squeeze.
The announcement was made by the banks including the US Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada and the Swiss National Bank.
Citigroup said its decision was independent of the Treasury plan to create the 80-billion-dollar SuperSIV fund that would buy assets from other funds that couldn't finance their investments.
Citigroup didn't give details of how it will finance the assets other than to say it will provide a "support facility" that will be in place early next year.
In November, Citigroup brought in 7.5 billion dollars through Abu Dhabi as a large shareholder, to shore up the need for new capital. dpa