Citigroup (NYSE:C), in a dramatic shift of course, will bail out seven affiliated SIVs and take $49 billion in assets onto its balance sheet to avoid fire sales of the SIVs' assets. Moody's responded by lowering Citigroup's credit rating to Aa3, the fourth-highest level, late Thursday. "Citigroup's weak earnings should prohibit the bank from rapidly restoring weak capital ratios," which could imply further downgrades, said Moody's SVP Sean Jones. As recently as November 5, Citi said it "will not take actions that will require the company to consolidate the SIVs." But Vikram Pandit, who became CEO on Tuesday (full story), switched gears. "It speaks to a change in leadership," said Joshua Rosner, MD at Graham Fisher. "It speaks to a new management who can wipe away the sins, call them someone else's and start to heal."
Others were less impressed. "This is just a ding to credibility that they didn't need," said Jeffery Harte, an analyst with Sandler O'Neill. "[T]his makes you question how well they understand some of the exposure on their balance sheet." Other banks, including HSBC Holdings (HBC), Societe Generale (OTCPK:SCGLY) and WestLB AG, have also elected to take responsibility for the assets of their troubled SIVs. The Citi bailout slashes the amount of senior debt still owed by SIVs to $140 billion from $340 billion in August, suggesting there may no longer be a need for the "superfund" set up by Citi, JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC) to rescue SIVs. "The need now has completely gone away," said Joseph Mason, associate professor of business at Drexel University.
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