Standard Chartered will fund troubled SIV

Standard Chartered has taken a second vertical slice of its Whistlejacket structured investment vehicle (SIV) and will consolidate the whole $7 billion structure onto its balance sheet, the bank announced today.

Standard Chartered first acted to support Whistlejacket in November, when it exchanged $140 million of the SIV's capital notes for a $1.68 billion vertical slice of its assets – a move that cost it a $46 million bottom-line cost. It subsequently took a second vertical slice, worth $1.65 billion, in exchange for $143 million of capital notes - costing it a further $70 million in reduced earnings.

The bank now says it will take the SIV's remaining $7.15 billion in assets onto its own balance sheet, and will continue to fund the vehicle through a commercial paper facility up to the full $7.15 billion.

Since the start of the credit crisis, Whistlejacket has hit funding problems - like other SIVs, it found it almost impossible to continue to fund itself by issuing short-term commercial paper. Whistlejacket has been raising funds instead by selling assets and using repo agreements, the bank said. Its portfolio has fallen from $18.2 billion in August to $10.8 billion in November and $7.2 billion at present.

Of this, 51% is asset-backed securities (ABS), chiefly based on high-rated auto and credit card debt, and 5% is collateralised debt obligations of ABS, of which "a small amount" is linked to US subprime mortgages, Standard Chartered said. Ninety-five per cent are rated Aa3 or higher.

The SIV still has $1.5 billion in third-party liquidity arrangements in place, but this cannot be drawn on until the SIV goes into liquidation, the bank said.

Rating agency Moody's said the move would not affect Standard Chartered's financial stability or its A2 credit rating.

See also: SIV pain resurfaces through ratings 
Standard Chartered takes $46 million profit hit