Thursday, January 31, 2008

StanChart consolidates its SIV

(FT Alphaville) Having spent a good portion of the autumn insisting that it would not be consolidating its SIV, Whistlejacket, onto its clean and neatly structured balance sheet, Standard Chartered on Thursday went the whole hog.

A full $7.15bn of unwanted assets is now headed the bank’s way. Whistlejacket can’t roll its commercial paper and medium-term notes, so Standard Chartered - despite previously assuring everyone that it had no obligation to do so - will now have to provide the requisite liquidity.

It could be worse. Whistlejacket’s assets stood at a bloated $18.2bn back in August. The unwinding of assets since then has more than halved the load, although StanChart has already had to take two “vertical slices” of the Whistlejacket portfolio to help that process along.

While other banks with troubled SIVs quickly accepted their responsibility, as sponsors and investment managers, to bail them out, StanChart has seemed strangely loath to do so. This is despite repeated claims that Whistlejacket only contains the best quality paper and clear evidence that StanChart’s balance sheet remains enviously strong.

There was further reticence on Thursday:

There are various pre-conditions to Standard Chartered’s funding. These include a requirement that enforcement proceedings have not commenced and that certain key enforcement triggers, including the capital note Net Asset Value trigger of 50%, have been amended or removed. Standard Chartered will shortly be seeking the necessary consents from all relevant parties, including the senior debt investors, capital note holders and rating agencies. If these consents are forthcoming, Standard Chartered will provide the necessary funding.
For what it’s worth, FT Alphaville reckons Whistlejacket’s immediate problem was in medium term notes, a barrel full of which were due to mature this month. And the problem is sure to extend well beyond StanChart, as the chart at the bottom of this post shows.

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