Standard Chartered plans to take $7.15bn (£3.6bn) of structured investment vehicle (SIV) assets on to its balance sheet, making it the latest bank to absorb one of the complex funds amid tough lending markets.
The Asia-focused bank said yesterday that the move would provide liquidity support to the Whistlejacket SIV, which was currently unable to fund itself fully in the market. The bank said the funding commitment would not have a material impact on its 2008 earnings or capital position.
Whistlejacket is an independent fund managed by Standard Chartered. The fund's board has been trying to manage its liquidity by selling assets, using repurchase agreements, and encouraging investors to exchange their investments for representative slices of its assets. Core assets have fallen from $18.2bn at the end of August.
The bank said the fund's asset quality remained high. Standard Chartered exchanged $140m of capital notes for a representative chunk of Whistlejacket's assets in early December and took a second slice of the assets later that month, resulting in a total write-down of $116m for 2007.
SIVs grew up during the credit boom. They sell short-term debt called commercial paper to buy longer-term, higher-yielding, assets. Standard Chartered follows HSBC and Citigroup in supporting SIVs after investor confidence in the funds was damaged by US sub-prime mortgage defaults.
Richard Meddings, Standard Chartered's finance director, said: "This is just a backstop facility. It is not clear to what extent it will get drawn."
Standard & Poor's, the ratings agency, said the restructured SIV should be able to fund itself in the market more easily than before. It added that even if Standard Chartered had to buy all of Whistlejacket's commercial paper the impact on the bank's liquidity and capital would be minimal.
Standard Chartered's shares fell by up to 6.7 per cent yesterday but closed little changed.