Another off-balance sheet time bomb: VIEs

As if there weren’t already enough toxic “investments” like CDOs and SIVs to crater the balance sheets of investment banks and hedge funds, here comes the VIEs (variable interest entities) and they could make subprime writedowns and carnage look small by comparison.

VIEs were designed to keep investments off balance sheets. But that may no longer be possible

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 sheet.

That would mean a writedown of $233bn. Can’t see how any bank on the planet could take a hit like that and survive.