Standard Chartered takes on $1.7 bln SIV assets

LONDON, Dec 5 (Reuters) - Asia-focused Standard Chartered said on Wednesday the dislocation in the credit markets and the liquidity crunch had forced it to take $1.7 billion of assets from a debt vehicle onto its balance sheet.

Standard Chartered -- an investor in the capital notes of the Whistlejacket structured investment vehicle that it manages -- said the SIV had offered capital note holders the opportunity to take "vertical" slices of its portfolio to cope with a drop in the value of its assets.

The bank said it had exchanged $140 million of capital notes for a slice of Whistlejacket assets amounting to around $1.68 billion. The move will have an impact on the bank's Tier 1 capital ratio of less than 0.1 percent.

Group Finance Director Richard Meddings said the deal accounted for around half of StandardChartered's capital note holdings and said it was "highly likely" that all of the bank's remaining capital notes in Whistlejacket would be retired by the end of the year.

Banks that have created these vehicles have been scrambling to find ways to support them as they have been caught out by the credit turmoil. SIVs' access to funding has been cut off and the value of their assets has fallen sharply, leading to pressure on triggers in the structures that could force fire sales of assets.

HSBC , Europe's biggest bank, last week took its two structured investment vehicles back on balance sheet in their entirety, taking $45 billion of assets and associated funding onto its books.

Whistlejacket's assets stood at $10.8 billion at the end of November, down from $18.2 billion at the end of August, after asset sales, repurchase operations and vertical slice deals with other noteholders.

"The group remains confident in the underlying quality of the assets acquired and it is expected that the temporary write down in value will flow back through income over the next three and a half years, which is the average life of the assets," the bank said.

VERY HIGH QUALITY

Standard Chartered said the assets remained of "a very high quality", 95 percent rated double-A or higher by Moody's Investors Service.

It said 40 percent of the exposure was to financial institution debt, 7 percent to triple-A rated monoline insurers, 48 percent in asset-backed securities and 5 percent in collateralised debt obligations backed by asset-backed securities (CDOs of ABS).

Moody's last week threatened to cut the top-ranking Aaa long-term and Prime-1 short-term ratings assigned to $4.9 billion of debt issued by Whistlejacket.

It said the structure's net asset value -- a measure of the value of the subordinated debt issued by the vehicle -- had declined to 69 percent from 80 percent as of Sept. 5 as market values of the assets held fell materially.