Banks discussing $100bn bail-out

Source: Exec Digital USA

Date :14/10/2007 20:42:04

A consortium of some of the world’s biggest banks are discussing plans for a $100 billion bail-out of sub-prime funds to try to stop further turmoil in the credit markets.

Prompting the move are the US Treasury and Britain’s Financial Services Authority who are both encouraging banks to sign up to the deal.

Talks were initiated by Robert Steel the Treasury’s undersecretary for domestic finance and advisor to Treasury secretary Henry Paulson.

It is believed that Paulson discussed plans with executives from some of the world’s biggest banks including Citigroup and JP Morgan during the biannual meeting of the Financial Services Forum in Washington last Wednesday.

Credit hangover

The fund is the latest response to a global credit hangover after at least three years of easy credit that fueled massive mortgage lending in the United States and spurred record levels of leveraged buyouts.

Experts say that creating a fund would allow structured investment vehicles (SIVs), which own $320 billion of assets, to avoid having to sell their holdings at fire-sale prices and further undermine the credit markets.

Citigroup, the world's biggest bank by market value, has nearly $100 billion in seven SIVs.

An announcement could come as early as tomorrow however the plan is encountering resistance from some banks who argue that Citigroup is asking others to help bail out its affiliates and an industry-wide bailout isn't needed.

October 14 2007