After nearly two months of negotiations, Bank of America, Citigroup and JPMorgan Chase have reached agreement on a simplified structure for the $75 billion "superfund" they are setting up to ease pressure in the credit markets, the New York Times reported Sunday. The fund will not require SIVs to gain the approval of 75% of investors before they will be eligible to participate, and the fund will not distinguish among the risk levels of SIVs' assets. "We cleared all the big hurdles," an unnamed source told the Times. "We agreed to a much simpler structure that we think can get done rather than optimize it for everyone." The source added that the fund could begin to operate by the end of next month. The three lead banks also could start to solicit contributions from 60 or so other institutions as soon as this Friday. The banks are still in talks over a 75-100 basis point fee structure, and the fund has yet to receive credit-rating approval. The fund is intended to stop SIVs from dumping their assets, but SIVs -- perhaps "on the assumption that the proposed backup fund will not work" -- are unloading them anyway. Treasury Secretary Henry Paulson, at whose urging the three banks agreed to establish the fund, stressed that while it is "not a savior... Anything at the margin that will speed up liquidity is worth trying."
Commentary: The Credit Crisis: It's Worse than Long-Term Capital Management • Superfund Isn't a Bailout - NYT • The Superfund's Merits: Sorry Hank, I'm Just Not Buying It
Stocks to watch: BAC, C, JPM. ETFs: FDL, DHS, IYG, KBE, RKH