One of the central goals of the new superfund announced by Citigroup and other major banks is to provide a buyer for structured investment vehicles, the low-yield capital-raising investments whose demand has dropped like a stone in the credit crunch. Citigroup announced today its SIVs are covered until year's end. But as several European SIVs face turmoil, bankers remain cautious.
As demand for the mortgage-backed securities that SIVs purchased dissipated, banks have been forced to sell off their holdings at fire-sale prices. The new superfund, called M-LEC, should stave off the worst for Citigroup, the world's largest bank and the most exposed to SIV troubles. But nobody's happy about it: some graceless bankers have termed bad-news investments "SIV-positive."