Citigroup, Banks Agree on `Super-SIV,' Person Says

Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co., the three largest U.S. banks, reached an agreement on the structure of an $80 billion fund to help revive the market for short-term debt, a person familiar with the talks said yesterday.

Bankers working on the deal met at Bank of America's offices in New York on Nov. 9 and settled on a simpler plan than initially proposed last month, according to the person, who declined to be named because the agreement isn't public. Under the original initiative brokered by Treasury Secretary Henry Paulson, the fund would buy some of the $320 billion in assets held by so-called structured-investment vehicles, known as SIVs.

The banks are pushing to have the fund in place by year-end because SIVs are unable to get short-term credit to finance their higher-yielding investments as losses on subprime mortgages drive investors from all but the safest government debt. The plan still has to win the confidence of investors amid forecasts from Deutsche Bank AG analysts today that losses related to subprime mortgages may reach $400 billion worldwide.

``The whole thing is flawed,'' said Graham Fisher & Co. managing director Josh Rosner, whose New York-based firm analyzes structured finance and real estate investments. ``As opposed to recognizing losses, we're trying to roll those losses into the future, regardless of the sanity or safety and soundness of doing that.''

A fund term sheet may be ready in as few as two weeks, once ratings companies evaluate the super-SIV and the banks obtain tax and legal opinions, the person said.

Borrow Short, Buy Long

Citigroup spokeswoman Danielle Romero-Apsilos and JPMorgan spokesman Brian Marchiony declined to comment. Both firms are based in New York. Scott Silvestri, a spokesman for Charlotte, North Carolina-based Bank of America, said he had no immediate comment. The New York Times reported yesterday that the banks had reached the agreement.

SIVs borrow in the short-term commercial paper market to invest in longer-dated securities ranging from mortgage bonds to bank debt.

The asset-backed commercial paper market has been shrinking for 13 straight weeks in the U.S. and last week declined the most in two months. Debt maturing in 270 days or less and backed by mortgages, credit-card loans and other assets fell $29.5 billion, or 3.4 percent, to a seasonally adjusted $845.2 billion for the week ended Nov. 7, according to the Federal Reserve in Washington.
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