HSBC to Move SIVs to Balance Sheet, Provide $35B in Funding

HSBC Holdings plc said early Monday it will provide up to $35 billion in funding for its two structured investment vehicles [SIVs], both of which will be moved to its balance sheet. Accordingly, its balance sheet will expand by $45B. The bank doesn't expect any "material impact" on earnings or capital strength. In a statement, HSBC said, "We believe that HSBC's actions will set a benchmark and restore a degree of confidence to the SIV sector, while providing a specific solution to address the challenges faced by investors in Cullinan and Asscher, the two SIVs managed by HSBC." A London-based analyst for Sanford Bernstein commented that HSBC is using its "balance sheet scale and strength to reassure investors in these vehicles and create a long-term solution," which "prevents the need for a fire sale of the assets." He said the move likely means HSBC will not join the "SuperSIV." Bank of America, Citigroup and JPMorgan are leading an effort to create a so-called SIV superfund (or "SuperSIV"), backed by the U.S. Treasury secretary Henry Paulson, by year's end (full story). HSBC's two SIVs are said to have enough funding to last into the new year. However, HSBC said it believes "there is not likely to be a near-term resolution of the funding problems faced by the SIV sector." Ordinary shares of HSBC were last down 1.0% to 818.50 pence in London, after initially trading to the upside on the news. HSBC's ADRs gained 2.6% to $84.74 on Friday.

Sources: Bloomberg, MarketWatch
Commentary: SIV Superfund to Begin Soliciting Investors - WSJ • HSBC Up on Profit Outlook Despite Higher Subprime Writedowns • Tales From the Mortgage Trenches
Stocks to watch: HBC. Competitors: BAC, C, JPM. ETFs: EWU, ADRU, ADRD

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