Banks seen readying $100B bailout
Reports: Citigroup, others working with Treasury Department to protect against further securities collapses.
NEW YORK (CNNMoney.com) -- A consortium of the world's biggest banks, led by Citigroup, is working to create a fund to back up to $100 billion in shaky mortgage and other securities, according to published reports Sunday.
The fund, according to reports in the New York Times and Wall Street Journal, would be used to buy securities at risk in the current credit crunch in an effort to avoid a broader economic problem. An agreement on the fund's framework could be announced as early as Monday, the Times reported, adding the talks were ongoing and could still result in no accord.
Both publications said the banks were brought together by the Treasury Department three weeks ago. A key principal in the talks is said to be former Goldman Sachs (Charts, Fortune 500) execuitive Robert Steel, under secretary of domestic finance and key aide to Treasury Secretary Henry Paulson.
"Treasury is very serious about getting some solution in place to take away the fear hanging over the markets," Alex Roever, a JP Morgan Chase (Charts, Fortune 500) credit analyst, told the Times. Roever has been following the discussions but is not involved in them, according to the paper.
A major focus of the fund, according to the reports, is structured investment vehicles, or SIVs. The Times said the SIVs - which issue short-term notes to invest in longer-term securities with higher yields - have been tainted by the loss of confidence in subprime mortgages,
The Journal, citing Moody's, said there are about $400 billion in SIVs.
Besides Citigroup (Charts, Fortune 500), the Times said Bank of America (Charts, Fortune 500) and JP Morgan Chase were involved in the discussions. The Journal said Britain's markets regulator has suggested that U.K. banks participate in the plan,
The Journal said Citigroup has about $100 billion invested in SIVs, while Britain's HSBC Holdings PLC (Charts) has about $35 billion.
Both the Times and Journal see the fund as an echo of the 1998 plan to bailout the hedge fund Long-Term Capital Management after it made a series of bad bets. The bailout was made to thwart an international financial crisis.