KKR and Citigroup form off-balance-sheet vehicle

Discussion in 'Wall St. News' started by ASusilovic, Oct 2, 2007.

  1. Source : http://ftalphaville.ft.com/blog/2007/10/02/7750/while-citi-teams-up-with-kkr/

    KKR and Citigroup are understood to have agreed to form an off-balance-sheet vehicle with about $5bn of equity and $10bn of debt to buy impaired loans, which could include some from Citi’s investment bank. The joint venture brings together the private equity firm responsible for some of the biggest leveraged buyouts in the run-up to the credit crunch and the bank that agreed to finance many of those deals. The vehicle could allow Citi to sell some leveraged buyout debt, which it has underwritten but is struggling to syndicate, as well as other troubled loans.

    Off-balance ? Seems cleaning team is in action... :D
  2. The people doing the cleaning had better be wearing bio-hazard clothing. The eventual accounting problem with this will be what are the loans really worth?
  3. Banks’ willingness to lend (i.e. supply of credit) is set to take a hit as a result of the recent turbulence in financial markets. Critically, the shutdown of asset-backed commercial paper markets has meant that the SIVs set up by the banks to offload loans from their balance sheets have lost their primary source of funding. Banks, facing the prospect of either opening huge credit lines to their SIVs or worse still bringing them back onto the balance sheet, have hoarded liquidity.

    On top of this, with demand for asset-backed securities highly diminished, banks have been unable to securitise their recent loans, eating into their capital and preventing them from generating the huge fees that such securitisation brings. In this way, with the prospect that such SIVs will have to be brought back onto the balance sheet and also unsure of their exposure to losses on some ABSs, banks will be unable to originate loans even if policy rates start coming down.
  4. Well, I think so, too. With 5,2 % global growth rate, I should not care. But couple of days ago, I read a research paper putting seriously into question my assumption :

    The data out of Euroland has been rather poor of late – the latest was
    a plunge in the region’s purchasing managers’ diffusion index to 54.5 in
    September from 57.4 in August, which was the steepest decline since
    October/01. The world’s second largest economy, Japan, just came off a negative
    second quarter GDP print. Canada just reported a sharp 0.8% slide in July retail
    sales – the second decline in a row. The Mexican Finance Ministry just cut its
    2007 GDP growth projection to 3% from 3.3%. When you add America’s NAFTA
    and G-7 trading partners, where growth is now slowing, they represent 60% of US
    exports. The BRICs may still be booming, but they account for less than 10% of
    US exports and only about 1% of US GDP, for that matter. So, the view out there
    that a BRICs boom will be enough to offset a slowing in US consumer spending
    and a sustained turndown in the housing market – which represent 75% of US
    GDP – seems to hopelessly optimistic. The numbers just aren’t there.