Variable Interest Entities???

[slipslidingaway]

Goldman, Lehman May Not Have Dodged Credit Crisis (Update4)

http://www.bloomberg.com/apps/news?pid=20601103&sid=aFTh5VXP9m0U&refer=news

Feb. 26 (Bloomberg) -- "Even Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. may find they haven't dodged the credit crisis.

The new source of potential losses: so-called variable interest entities that allow financial firms to keep assets such as subprime-mortgage securities off their balance sheets. VIEs may contribute to another $88 billion in losses for banks roiled by the collapse of the housing market, according to bond research firm CreditSights Inc. Goldman, which hasn't had any of the industry's $163 billion in writedowns, said last month it may incur as much as $11.1 billion of losses from the instruments...

`Significant Consequences'

Wall Street's writedowns stem from a surge in mortgage delinquencies among homeowners with the riskiest subprime-credit histories. The industry's VIEs, also known as conduits, had $784 billion in commercial paper outstanding as of last week, according to Moody's Investors Service and the Federal Reserve. ``There's a big number at work here and it will have significant consequences,'' said J. Paul Forrester, the Chicago- based head of the CDO practice at law firm Mayer Brown. ``The great fear is that a combination of subprime CDOs, SIVs and conduits result in a flood of assets into an already-stressed market and there's a price collapse.''


...Citigroup Losses

Citigroup, which has incurred $22.1 billion in losses from the subprime crisis, has $320 billion in ``significant unconsolidated VIEs,'' according to a Feb. 22 filing by the New York-based bank. New York-based Merrill Lynch, which recorded $24.5 billion in subprime writedowns, has $22.6 billion in VIEs, according to CreditSights..."