HSBC becomes the first bank to bail out its SIVs

--In a sign of the building pressure, United Kingdom banking giant HSBC Holdings PLC yesterday became the first bank to bail out specialized funds known as structured investment vehicles. HSBC plans to gradually shut down two bank-sponsored SIVs and take $45 billion in mortgage-backed securities and other assets owned by the funds onto its own balance sheet. --two SIVs, called Cullinan Finance Ltd. and Asscher Finance Ltd. Janus Capital Group Inc. --Cullinan Finance Ltd., which has $37 billion in assets, is the second-largest SIV after Sigma Finance Corp., an SIV operated by a nonbank firm in London called Gordian Knot Ltd. Asscher has $8 billion in assets. --HSBC's move was viewed as a plus for firms such as these because it would help prevent a fire sale. "While this does not eliminate default risk to Federated and Janus, it does reduce or eliminate" the risk that the assets would be dumped into a market with few, if any buyers, said J.P. Morgan analyst Kenneth Worthington in a research note yesterday. --In a statement, HSBC said its move to rescue the two funds will "prevent funding constraints in the structured investment vehicle sector from forcing a liquidation of high-quality assets." --Ratings agency Standard & Poor's said yesterday that its long-term AA-minus rating on HSBC is unaffected. The bank, S&P said, "has sufficient resources to absorb these additional obligations." --HSBC's Tier 1 capital ratio, a measure of a bank's regulatory capital strength, ranked high among its peers at 9.3% as of June 30. In a worst-case scenario -- the company essentially would have to fund the entire new structure -- that ratio would fall to about 9%.