Standard Chartered will take a $46m ($22.7m) writedown after bringing assets from its Whistlejacket structured investment vehicle (SIV) on to its balance sheet, the Asia-focused bank said yesterday.
Whistlejacket is an independent fund managed by Standard Chartered. The bank has exchanged $140m of its $280m of Whistlejacket capital notes for a "vertical", or representative, slice of the underlying assets in the fund.
The $1.68bn of assets have been transferred to Standard Chartered's balance sheet, resulting in a $46m charge against income for the reduced value of the assets.
The bank said it would probably take a second slice of Whistlejacket's assets and a further writedown before the end of the year.
Another note holder has also swapped its notes for assets and others are considering doing the same, Richard Meddings, Standard Chartered's finance director, said.
"Vertical slicing was a good way forward," Mr Meddings said. "In exchange for my investment, I am given a bit of every asset to take away and do with it what I wish."
Mr Meddings said Whistlejacket's assets were of very high quality and that he was con-fident they would pay the original investment and interest to maturity. The fund's assets have fallen from $18.2bn at the end of August to $10.8bn due to vertical slicing and asset sales.
SIVs are opaque funds that grew up during the credit boom and have contributed to the crash in investor confidence.
They sell short-term cheap debt to buy longer-term higher-yielding assets and the debt they issue is backed by the assets in the fund.
But US sub-prime mortgage defaults rocked confidence in credit vehicles, causing investors to shun their debt and putting strain on their funding.
Moody's, the ratings agency, expects SIVs to die out in their current form. The agency said yesterday it had extended its review of SIVs by two weeks because many SIV managers were about to announce initiatives to restructure the vehicles.
Standard Chartered said the SIV charges and two other short-term hits to its income statement totalling about $230m would not stop full-year profit from meeting analysts' consensus of about $3.96bn a 24 per cent rise.
The bank said it had a very strong second half of the year, especially in wholesale banking. Strong economies and liquid markets in Asia and the Middle East, where the bank makes most of its profits, meant it was not feeling the strain experienced by banks that focus on Western markets.
"It is a tale of two worlds. The world we bank in is still growing and growing strongly," Mr Meddings said.
In Korea, where the bank made its biggest acquisition in 2005, Standard Chartered is still working to convert the business from a mortgage lender into a full-service consumer and wholesale bank.
Mr Meddings said he would be "very upset" if the Korean business was not working well with the rest of Standard Chartered's wholesale banking operation in 18 months.Reuse content