SIV Sigma fails

Sigma Finance, a structured investment vehicle managed by London-based Gordian Knot and with US$27 billion in assets, failed this week, the Financial Times reported.

JP Morgan declared a default on its funding for Sigma on Monday.

Banks provided repo financing of US$17 billion but held US$25 billion of collateral to protect them from losses, though the value of the securities may be less than that.

The newspaper quoted estimates by analysts at Citigroup that unsecured creditors would recover less than 20 per cent of what they were owed. Investors holding US$4 billion in junior capital notes may lose the lot, the FT reported.

In other overnight highlights from the enduring credit stress Bloomberg reported the Libor-OIS spread, the difference between the three-month US dollar rate and the overnight indexed swap rate, widened to 260 basis points. The spread was 197 basis points a week ago and 79 basis points a month ago.