Societe Generale Taking on $4.3 Billion of SIV Assets

Societe Generale Taking on $4.3 Billion of SIV Assets (Update1)

By Sebastian Boyd

Dec. 10 (Bloomberg) -- Societe Generale SA, France's second-biggest bank by market value, will bail out its structured investment vehicle by taking on $4.3 billion of assets to avoid a fire sale.

The rescue will cause Societe Generale's ratio of Tier 1 assets, a measure of financial strength, to fall by 5 basis points, the Paris-based lender said today in an e-mailed statement, citing ``market conditions'' for the decision. Asset- backed securities account for 75 percent of the holdings and debt issued by financial companies make up the rest.

Standard & Poor's warned on Dec. 7 that Societe Generale's Premier Asset Collateralized Entity Ltd. SIV was close to breaching capital tests that would trigger the appointment of a trustee to protect senior debt holders. The value of the bank's own $103.5 million investment in capital notes sold by the SIV slumped to $27.6 million at the end of November, the bank said.

Investors are shunning short-term debt sold by SIVs because of concerns that they may lose money from holdings of subprime- related debt. HSBC Holdings Plc and Rabobank Groep NV have also agreed to take on assets of SIVs to avoid fire sales.

Bonds backed by home loans, including subprime debt, comprise 12 percent of PACE's holdings, Societe Generale said. Collateralized debt obligations make up another 19 percent. Debt guaranteed by monoline bond insurers accounts for 18 percent and bonds backed by other debt such as student loans made up 26 percent.

Societe Generale fell 1.1 percent to 105.37 euros as of 9:20 a.m. in Paris trading.

BLOOMBERG