Variable Interest Entities

No wonder Citigroup had analysts discussions last night over cocktails. Bloomberg has this to say:

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.

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...

The securities in the VIEs may be worth as little as 27 cents on the dollar once they're put back on balance sheets, according to David Hendler, an analyst at New York-based CreditSights.

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

Once again the headlines are worse than the reality, but anyone reading the 10K of Citigroup and not getting queasy, must have a lot of faith in the institution. (Page 86-87 of the 10-K outlines their exposure to VIE's)