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US Banks Agree on Superfund Structure: WSJ

CNBC.com
Monday, 12 Nov 2007 | 8:11 AM ET

The three largest U.S. banks have agreed on the structure of a $100 billion super fund designed to help unblock the credit markets, the Wall Street Journal reported Monday, citing people familiar with the situation.

Is the US Banks Super-Fund Coming?
Certain US banks reached an agreement on the structure of a $100-billion fund to help unfreeze the market for short-term debt. CNBC's Louisa Bojesen asks Roger Nightingale, strategist at Pointon York, whether this fund has helped stabilize market volatility and re-install investor confidence.

But the fund still has to obtain the blessing of the banks' corporate managements, legal departments, tax experts and credit-rating providers that will assess the debt associated with it, before it can become operational, the paper said.

The superfund plan was initiated by Citigroup, JP Morgan and Bank of America, with the backing of the U.S. Treasury Department, in the wake of the credit squeeze, in September.

Since then, the three banks have tried to put together the details of the plan and to attract other financial institutions to take part, but so far these have remained sidelined.

The superfund is aimed at buying certain assets from structured investment vehicles, the banks' off-balance-sheet entities, to prevent them from selling the assets as fire-sale prices.

The fund will set certain criteria for the assets that it can buy, and those tied to subprime mortgages will not be eligible.

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However, skepticism about the superfund is running high.

"The biggest concern is… who's going to regulate it, how big it will be and are we putting off losses that should have been disclosed today?" Mannus Cranny, head of sales at Cantor Index, told "Worldwide Exchange."

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