Citigroup has performed a U-turn on its refusal to move $49 billion worth of structured investment vehicles (SIVs) on to its balance sheet, casting doubt on the company's contribution to a US Treasury-led "superfund" aimed at bailing out other banks.

Citigroup's seven SIVs asset value has fallen by 40.9 per cent in less than three months.

Moody's, the credit rating agency, immediately downgraded Citigroup's long-term credit rating from Aa2 to Aa3. It also lowered the bank's financial strength from A- to B.

Under Citigroup's new chief executive, Vikram Pandit, the SIVs will now be classed as debt held by the bank as opposed to investments that are affiliated to the company.

Just over a month ago Chuck Prince, who was ousted as Citigroup's chief in November, refused to recognise the investments as debt.

SIVs are funds that invest borrowed capital in areas such as mortgages and credit card debt.

Citigroup said that it expects to provide "little or no" funding to the SIVs which have "liquidity needs" of $35 billion until the end of next year. The bank has already made $10 billion of financing available to its seven SIVs, which drew down $7.6 billion by the end of October.

Since the sub-prime mortgage crisis hit the US, and credit concerns have constricted consumers from increasing their borrowings, the value of many SIVs have suffered.

As a result of the change in policy, Citigroup's capital ratio, which is the amount of cash the bank has compared to its debt, will reduce by 0.16 per cent to 7.3 per cent . The bank expects its capital ratio to return to 7.5 per cent in 2008.

Citigroup is one of three banks set to contribute to a so-called "superfund", suggested by Hank Paulson, the US Treasury Secretary as a means of bailing out other banks' troubled SIVs. Mr Paulson said recently that he was hoping the superfund would be up and running by the end of the year.

As well as Citigroup, Bank of America and JP Morgan will set up the fund through which at $60 billion will be made available. However like Citigroup, Bank of America has also been blighted by billions of dollars worth of write-downs raising a question mark over whether banks which are nursing their own writedowns are in a position to bail out other financial institutions.

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