The big New York bank said it would provide emergency support to the entities -- known as structured-investment vehicles -- if it can't find buyers for their short- and medium-term debt. SIVs, which often hold mortgage-backed securities, have come under intense scrutiny in the past several months as nervous investors have balked at buying the short-term debt known as commercial paper that provides critical funding to the vehicles.
While Citigroup's action may ease uncertainty about the future of its SIVs, it may be the death knell for an industry-wide effort to create a rescue fund for the struggling vehicles.
Since September, Citigroup, Bank of America Corp. and J.P. Morgan Chase & Co. have been working to set up the fund, at the behest of the Treasury Department. But interest in the rescue fund has waned in recent weeks as several banks concluded they couldn't wait for it to get up and running, and decided to bail out their own SIVs.
Citigroup's decision to follow suit underscores how quickly Vikram Pandit, who was named Citigroup's chief executive Tuesday, is moving to tackle the many problems facing the bank. (See related article.) Just two days into his tenure, Mr. Pandit decided to reverse repeated assurances by Citigroup executives that the SIVs would stay off the bank's books.
The bank's action could help relieve some of the anxiety in credit markets by removing the threat that the SIVs would be forced into selling assets at fire-sale prices.