Lectures &

News & Views

Law &



Trust Products
& Practice

About the Guru


Email Feedback

Guest Register











(Article published in the Jun 25, 2008 issue of Manila Standard Today)  

If the English saying, “misery loves company” is reliable, then Noel Baviera need not be miserable.  He, as well as other clients of Standard Chartered Bank similarly situated, is in good company.  In London, believed to be sharing with Baviera the same type of misery, though not exactly due to the same circumstance, are a number of international financial institutions.

 Their common reason for disappointment is their respective investment in financial assets peddled by Standard Chartered Bank in the manner of a commodity.  Noel Baviera invested several years ago in what were impressively called “global third party funds”; his more recent co-sufferers picked up substantial interest an SIV known as “Whistlejacket Capital, Ltd.” When the going got rough, then in Manila now in London, Standard Chartered Bank abandoned its vendees to the consequences of their respective investment decisions.

 An “SIV”, or a structured investment vehicle is essentially an fund that banks set up, once upon a time, when the credit market was booming.  Typically, the funds sold short term commercial paper and used the proceeds to buy longer-term, and thus presumably higher-yielding, assets.

 The name of Standard Chartered Bank’s SIV was well-chosen “Whistlejacket” was a famous race horse foaled in 1749 and is well-remembered for his victory in a contest over four miles for 2000 guineas at York in August 1759.  He lives in a painting done by George Stubbs commissioned by the 2nd Marguess of Rockingham and hangs in the National Gallery in London.  The use of the same name thus signals, not too subtly, that Standard Chartered Bank’s  SIV was a winner.


Standard Chartered Bank’s website was not shy about Whistlejacket.  “Whistlejacket,” says the bank, “invests in a portfolio of high quality investment grade securities with a weighted average rating of double A funding by the issuance of A-1+/P-1, AAA/Aas rated senior debt and investment grade subordinated debt (Capital Notes).” 

 It was moreover not too timid about its ownership of the structure.  Again, quoting the bank’s website, “Structured Credit Investments [a unit in the bank] is a specialized team which created the structured investment vehicle, Whistlejact Capital, Ltd. and has been appointed  by Whistlejacket’s board to manage its day-to-day investment, treasury and support activities.”  Naturally, “Standard Chartered, through the SCI team in London is the sole dealer on the Capital Note programme and through the Fixed Income team in Singapore, is the dealer on Whistlejacket’s Euro MTN [medium term note] programme.”

 Then came the US subprime market. Hell broke loose; borrowing short and lending long, Whistlejacket lost liquidity.  The fund’s board tried to address the problem by selling assets, using repurchase agreements, and encouraging investors to exchange their investments for representative slices of its assests.  But to no avail.  The value of the assets of Whistlejacket fell from $18.2 billion in August of last year to a mere $7.15 billion by the end of January this year.

Standard Chartered Bank initially announced that it would take the assets of Whistlejacket into its balance sheet.  Other SIV sponsors such as HSBC and Citigroup, were doing the same in order to provide liquidity.  Something like what Urban Bank did in order to fund withdrawals of investors in the common trust fund of Urbancorp.  The idea was to “warehouse” the assets of Whistlejacket during the duration of the crisis to prevent their being sold by the fund in a fire sale. 

 But less than two weeks after Standard Chartered Bank’s announcement of support, Whistlejacket limped into receivership.  Displaying the stiff upper lip, Richard Meddings, Standard Chartered’s finance director said, “We continue to have confidence in the quality of Whistlejacket’s assets.  We remain willing to have discussions with the receiver, once appointed, and hope to find a viable solution to ensure flexibility for Whistlejacket.”

Deloitte & Touche was chosen by the creditors as receiver, and in fairness both to the bank and to the receiver, strenuous efforts were exerted to bail out Whistlejacket. But the rating agencies could not be prevented from downgrading the notes issues by the fund on the basis of the continued deterioration of its underlying assets.

 The receiver was forced to elect not to pay MTNs maturing in the middle of February.  When the fund actually defaulted, its notes fell into the category of junk bonds. 

 Standard Chartered Bank by February 20 had backed out.  Sadly, Neville Kahn, Deloitte prtner and Whistlejacket receiver, announced: “We were informed of Standard Chartered decision to withdraw their proposal this morning…”

 By dint of good fortune, however, Goldman Sachs, working on the restructuring of another failed SIV, the Cheyne Capital which is also under the receivership of Deloitte, seemed to have found an acceptable solution to the problems of distressed assets and structures in the credit markets.  The so-called Cheyne Model starts with the holding of an auction to determine the true value of the assets of the SIV; then goes on the sale of the bucket of assets to Goldman Sachs priced as per the auction; the creation of a new SIV which will issue pass-through notes to investors, among whom most likely will be the senior creditors of the fund who are offered several options; and eventual management by Goldman Sachs of the new SIV until such time that the crisis passes. 

 There are various difficulties with the solution, but everyone agrees that solutions like that, private sector driven and market priced, were long overdue.  But still, even if it does wipe out the junior creditors, who should have known in the first place the risks they were going into, it was a welcome one.  Standard Chartered Bank’s abandoned child, Whistlejacket, is lined up, with three other SIVs, for a similar approach from Goldman Sachs and Deloitte.

           That ray of hope of recovering, at some point in the future, is what probably separates Noel Baviera from his London co-sufferers.  Because Whistlejacket’s investors refrained from shooting and shouting, taking their bumps and lumps as part of the investment game, they just might see good times, even if far into the future.  But, on the other hand, Noel Baviera took his cause to every venue that would and had to listen, he just might have to wait for the coming of Gadot.