Defaulting banks - where will it stop?

[Jan Klimkowski]

http://www.ft.com/cms/s/0/b87aa880-e269-...ck_check=1

Citigroup’s Corporate Special Opportunities hedge fund is returning only 3 cents on the dollar to investors, underscoring the depths of the difficulties at the alternative investment unit once headed by the bank’s current chief executive, Vikram Pandit.

The amount being returned is less than had been expected when the company decided to wind up the fund last year and came as bruising news for investors who had been prevented from withdrawing their money since January 2008.

Citigroup also stands to lose hundreds of millions of dollars it lent to CSO. It provived the fund with as much as $450m in credit lines and $320m in equity, while also placing assets with a nominal value of $1bn that it had bought in the fund.

Without the support from Citigroup, the hedge fund, which invested in corporate debt, would have had negative equity, according to a person with direct knowledge of the matter.

“Every fund that invested in bank loans in Europe and used leverage did not survive,” a Citi spokesperson says. “At least we are giving investors cash.”

:pcguru: