From: Reuters
Published February 20, 2008 06:54 AM

StanChart drops SIV restructuring plan

By Clara Ferreira-Marques and Natalie Harrison

LONDON (Reuters) - Standard Chartered on Wednesday dropped initial rescue plans for its $7 billion Whistlejacket structured investment vehicle which was forced into receivership last week, drawing criticism from analysts.

Asia-focused bank Standard Chartered said its decision to drop the plans was the result of a number of factors including "the pace of continuing deterioration in the market for certain asset classes."

Receivers Deloitte said they were continuing to work on a potential restructuring and emphasized that a fire sale of Whistlejacket's assets was not under consideration.


Other banks have stepped in successfully to rescue their SIVs, which raise short-term debt and invest the proceeds in longer-term securities. The vehicles have faced problems as the subprime crisis has led funding to dry up at the same time as the value of their assets has dropped sharply.

HSBC said just last week that investors had unanimously agreed a proposal to restructure its Cullinan structured investment vehicle (SIV). And Citigroup is setting up a $3.5 billion facility to support six of its SIVs in order to protect creditors and short up debt ratings.

This is the second time Standard Chartered has had to scrap plans aimed at supporting its SIV. Its first proposals to provide liquidity, announced in January, lapsed in February as the vehicle went into receivership.

Standard & Poor's warned last week that a default was imminent on some of Whistlejacket's debt after the receiver chose not to make a payment on February 15. There is a three-day grace period during which payment can be made.

Mark Harmer, head of credit research at ING, said Standard Chartered's decision was unlikely to hurt sentiment or have a significant financial market impact. But it did cast a shadow over the bank's reputation, he said.

"It is certainly a reputational thing. I'm surprised that they haven't pulled out all the stops to try to get some sort of liquidity backstop in place," said Harmer.

Ratings agencies had given the OK to Standard Chartered's plans to support the SIV, saying they would not affect the bank's ratings or strain its balance sheet.

A Standard Chartered spokesman, however, played down talk of a reputational hit to the bank, saying: "Investors in Whistlejacket are mature investors and are aware they are just caught up in current market dislocation."

In Standard Chartered's favor, Harmer said, was its focus on Asia and emerging markets.

"I'm not sure an emerging markets corporate customer is going to look at Standard Chartered side-stepping a rather complex investment vehicle such as Whistlejacket as having any bearing on its business," he said.


Neville Kahn, the partner in charge of the receivership at Deloitte, said it would be exploring all the options available for Whistlejacket.

"That includes alternative financing, whole book solutions or holding these assets to long-term maturity," Kahn said. "But I can confirm that there is no need for a fire sale of the assets. Absolutely categorically no need," he said.

Deloitte declined to name the banks that it was talking to.

"We're trying to work through this as quickly as we can but there is no timescale," said Kahn.

Deloitte is also acting as receiver for the Cheyne Finance SIV, set up by hedge fund Cheyne Capital Management, and the Rhinebridge Plc SIV set up by German bank IKB.

(Reporting by Clara Ferreira-Marques and Natalie Harrison; Editing by Richard Barley/Elaine Hardcastle)

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