Citigroup, Bank of America and JPMorgan Chase & Co abandoned a US Treasury-sponsored plan to buy assets from cash-strapped structured investment vehicles.
The "SuperSiv" fund brokered by Treasury Secretary Henry Paulson, slated to be about $80 billion when it was announced in October, "is not needed at this time", the banks said in a statement on Saturday.
The need for a bailout has diminished as HSBC Holdings, bond insurer MBIA and other companies that manage SIVs arranged their own rescues. The steps lessened the threat that SIVs will dump their holdings and further roil credit markets contaminated by losses in securities tied to subprime mortgages.
New York-based Citigroup said last week it would guarantee $58 billion in debt from SIVs it manages in order to avoid a forced sale of the assets.
"The market is in surgery and they can't even get the Band-Aids to work," said Thomas Flaherty, who manages $25 billion in corporate debt at Aberdeen Asset Management in Philadelphia.
More than 20 banks, SIVs and investment managers participated in the discussion with BlackRock Inc. serving as the adviser, the statement said. The banks could revive the plan if needed.
SIVs reduced their holdings to less than $265 billion from $340 billion during the summer, the banks said in the statement. The assets are expected to continue to decline.
"The private sector participants always indicated that this vehicle was designed to complement other market solutions," Jennifer Zuccarelli, spokeswoman for the Treasury Department, said in a statement. "The department appreciates the efforts of the financial professionals."
Citigroup took $49 billion in SIV assets onto its balance sheet, following decisions by banks, including HSBC and WestLB AG, to take on the assets of SIVs or provide financing to ones they manage. ( Gulf )