Citigroup, JPMorgan Chase and Bank of America announced they have created a pool of capital, estimated between $75-$100 million, to purchase mortgage portfolios from structured investment vehicles (SIVs).
The aim of the fund is to allow SIVs to sell their mortgage books and try to restore more regular trading conditions, but at the same time prevent SIVs dumping the books into the market and causing further volatility.
Responding to the news, the US Treasury department said: “The Treasury is pleased with the response by the private sector to enhance liquidity in the short-term credit markets. The joint efforts of domestic and international financial institutions, broker dealers, and investors have resulted in a potential structure to improve liquidity in the asset-backed commercial paper markets. This proposal will complement other solutions investors and asset managers may utilise in committing and deploying capital to support more efficient markets.”
Mark Jannaway, director of OC&C Strategy Consultants, commented: “Fundamentally, they are setting up the fund to provide extra liquidity, which is good. However, these things are never selfless – they have got good publicity out of it and will be buying some good value assets. It’s all about the price they pay versus what they are worth and in these troubled times, people will sell assets for less than they are worth.”
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