Will Other Banks Follow HSBC's SIV Plan?

Since HSBC announced this week it would take $45 billion worth of its SIV funds assets on to its books, many financial institutions are now inevitably being asked what they plan to do with their failing SIVs. Bank of Montreal said on their Q4 FY 2007 earnings call that the losses they were planning for were based on absolute worst-case scenarios, and that they had also taken on more backing for their senior debt notes.

Ultimately, what will prevent the SIVs from losing more value? Investors are worried that today's writedowns may not be the final ones:

James Bantis - Credit Suisse

...Bob, I certainly appreciate all the data you provided us with respect to the SIV exposure. But I am wondering perhaps without a lot of the numbers you can just walk us through in terms of the confidence you see that the $1.6 billion really won't become impaired and there won't be another restructuring... Where [do] you get that confidence from[?]

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Robert McGlashan - BMO Executive VP and Chief Risk Officer, Enterprise Risk & Portfolio Management ...We've sold a fair volume of assets in both of those vehicles to date and they represent a pretty good cross-section of all the asset classes in there. There is a slight bias to the more liquid assets but it's still pretty representative and a discount write-up to an including very recent days has been pretty modest that we have had to take on those assets. We know what's in there and looking at the asset quality of what's there we're very comfortable with that kind of it would produce a loss given the opportunity to run to maturity. Compounded with what we are able to sell into a pretty tough market at a very, very low discount, it's hard to see how we would end up burning through the equity notes 40 basis points. As I mentioned we have to experience discounts five times that large just to address the size of the adjustments that we've already taken in capital notes. So it's pretty hard for us to see how we ever get to the point of having to burn through the capital and into the senior debt.

Yvan J.P. Bourdeau - CEO, BMO Capital Markets and Head of Investment Banking Group

...Throughout this period we've been able to actually bring into the vehicle a large number of the third party participants that contributed to the senior notes and the amounts were approximately $1.1 billion and in terms of repo close to $1.6 billion. So all of those in our minds are clear signs that we have put in place a plan that will enable us to lead towards a resolution, a permanent resolution for both SIV.

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James Bantis - Credit Suisse

Great. I certainly appreciate that. And I guess what we are trying to understand is we have seen a large global bank HSBC make the decision to take their SIVs on balance sheet. And I know each SIV is different in each bank role is within the SIV is different as well but I think that's what perhaps doors will open in that regards?

Robert McGlashan

I think that's exactly the point, if I look at the information that is available publicly then you would see that our SIV is definitely a high quality. And I think each SIV has to come up with their own plan to come up with the resolution for their vehicle. And at this point in time, we feel the plan that we are progressing on and then discussing with the stakeholders is actually the proper one. So it's on that basis that we are continuing to execute it.