Standard Chartered SIV Whistlejacket has defaulted on its obligations and might be set for an orderly unwind.
However, for ABCP buyers, the StanChart situation signals a loss in confidence that bank-sponsored deals would be supported by their parent entities. "The bank had renewed its proposal of support after the SIV entered enforcement, but it now appears the receiver will look to defer any maturing debt, avoiding any asset fire sale," said Deutsche Bank analysts.
Analysts reiterated their view that the threat of asset sales has not lessened, although forced or fire-sale liquidations from either the bank sponsors or receiver-controlled vehicles seem unlikely. This is based on comments made by administrators in the case of SIVs in enforcement as well as the restructuring measures that have been taken by banks aimed at orderly unwinds, Deutsche analysts said.
Societe Generale's latest data from December shows 42 billion ($63.5 billion) of withdrawals from money market funds, including 7.3 billion from enhanced cash funds. European ABCP outstandings have also fallen to $127.3 billion from $148.5 billion at the end of January. Deutsche Bank said that nearly 50% of deleveraging operations within ABCP structures have been executed through outright asset sales, vertical slice trades with SIV capital note investors as well as natural amortization. However, these bank bailouts are unlikely to stop the flow of asset sales and might prolong the overhang in the secondary market.
Restructuring proposals have focused mostly (HSBC being a notable exception) on provision of liquidity facilities as an add-on to ongoing asset sales, Deutsche Bank analysts said, adding that vehicles in enforcement are probably going to engineer orderly portfolio unwinds. "Thus, SIV crisis resolution or not, we see no near-term let-up on ABS market technical pressures," they said.
StanChart reported a 27% rise in full-year profits boosted by its wholesale and consumer banking divisions. The bank also said that it has taken a charge from the $300 million used for its Whistlejacket investment and other asset securitization write-downs.
StanChart said pretax profit in the full year ending last December rose to $4 billion from $3.17 billion the previous year. The bank also said that it had no direct exposure and very limited indirect exposure to U.S. subprime assets considering its entire exposure to ABS, including CDOs, is under $6 billion.
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