Vertical slices

From FT alphaville and worth quoting in full:

Citi’s SIVs have reduced their assets by $15bn in the past couple of months.

But it’s not the figure, or the reduction, that’s news. Speculation that the Citi seven currently have around $66bn under management was actually first mooted a little while back.

Here’s the interesting bit, about how the assets have been offloaded,

…through quiet side deals with some junior investors, according to people familiar with the business.

A bit more detail:

…people familiar with the vehicles say their size has been cut from $83bn at the end of September to about $66bn largely by selling pro-rata portions of a SIV’s portfolio of assets to investors in the most junior notes at market values. Citi is also talking to some investors about directly swapping their holdings for underlying assets.

In other words, Citi are basically saying to junior noteholders, that they’re unlikely to get anything back for their notes, but as consolation, they can buy assets from the SIV at market value - probably slightly below what they’re really worth. Quite an audacious palm-off. On the other end, we assume the money from these sales is being used to refund MTN investors (given that Citi are themselves assuming CP liabilities).

And as the FT report says, Citi is also looking at organising direct asset for note swaps.

Both of these have got to be negotiation intense options, surely with sky-high lawyers’ bills to boot. So the fact that they’re being pushed doesn’t sound like it bodes well for M-LEC.

Update. Some further background from S&P is here.