The overall European ABCP market in 2007 was characterized by uncertainty. There were more questions than answers, and there was very little deal activity.

However, one move by HSBC in the first week of December proved to be the most definitive of the year. HSBC announced then that it was not interested in being part of M-LEC, the doomed bailout superfund, for its two SIVs - Cullinan Finance and Asscher Finance.

Instead, the bank announced that it was taking $45 billion worth of securities and bonds onto its balance sheet.

"We believe that HSBC's actions will set a benchmark and restore a degree of confidence to the SIV sector," said Stuart Gulliver, chief executive of the bank's corporate, investment banking and markets division at the time. Now, in the early weeks of 2008, one would be hard pressed to find a critic of HSBC's decision.

"Yes, it was very positive for the market," said an SIV manager at another European investment bank. "Rolling SIVs into a new conduit is nothing new; in fact, it seems a bit of a step back considering conduits used to be rolled into SIVs, but HSBC will now be funding the senior notes while waiting for a better time to wind down and also earning their fees along the way."

HSBC's decision was not particularly innovative, according to an analyst at another investment bank. "But it worked, especially considering that they wouldn't have known that M-LEC was going to be dropped," he said.

The larger of the two SIVs, Cullinan - named for the largest gem-quality diamond ever found (3,106 carats) and the fastest growing SIV ever seen - quickly became one of the top five SIVs in the market, representing $27 billion. Put together with Asscher, named for the two Dutch brothers who first cut the giant diamond, these structures represented nearly one quarter of Europe's SIV market.

Taking a SIV onto the balance sheet "means different things to different banks," said an observer currently working to solve his bank's SIV issues internally. He hinted that a similar solution would not work for his firm. "Looking back at 2007, there really is only half a year, the first half, to look at," he said.

HSBC actions at the end of 2007, with all things considered, he added, seemed to be the "only good news" to come out of the darkest winter securitization has ever seen.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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