Citi to Rescue SIVs

Updated from Dec. 13

Citigroup(C) plans to bail out its beleaguered structured investment vehicles -- a move that would put added strain on the company's already stressed balance sheet.

The largest U.S. bank will create a credit facility that would provide a backstop to some $58 billion in commercial paper and medium-term notes that make up its seven SIVs. The action effectively brings onto balance billions of debt whose assets have been severely pinched due to concerns over subprime credit.

Specifics on the planned Citi backstop facility were unavailable late Thursday, but the anticipated plan is that the bank will form the facility at the beginning of next year.

Citi's stock was down 2.3% to $30.30 in premarket trading Friday.

Bringing the bank's seven SIVs, known as Beta, Dorada, Sedna, Vetra, Zela, Centauri and Five, on its balance sheet is a stark reversal for Citi, which has for several weeks stated that it would not be forced to bail out its investment vehicles, even after HSBC(HBC) and Dusseldorf, Germany-based bank WestLB decided to bring their own SIVs onto the balance sheet to stave off price erosion.

Citi's rescue comes just days after Vikram Pandit was named the bank's CEO and Win Bischoff was named chairman in the wake of the ouster of former CEO Charles Prince.

The planned bailout also comes nearly a week after Standard and Poor's threatened to cut the ratings of SIVs sponsored by Citi, Societe Generale and WestLB.

A Citi spokeswoman declined to comment beyond the company's press release.