Two British banks yesterday prepared to transfer billions of dollars worth of sub-prime-related investments on to their balance sheets, as investors remain reluctant to buy complex credit products.

HSBC said that it was negotiating with investors in its Cullinan structured investment vehicle (SIV) over plans to move assets from Cullinan to two new vehicles. Meanwhile, Standard Chartered said that it would provide $7 billion (£3.5 billion) to buy out investors in its Whistlejacket SIV, to prevent a fire-sale of its assets.

Richard Meddings, Standard Chartered’s finance director, said that the changes were “the next step in resolving the funding challenge faced by Whistlejacket in the current market conditions”.

SIVs are off-balance sheet vehicles that issue short-term and medium-term debt, which is backed by longer-term securities. These vehicles ran into trouble during the credit crunch in the second half of last year, when their underlying investments in asset-backed securities plunged in value and the investors who bought their short-term debt fled. Some banks and hedge funds have since then restructured their SIVs, taking them back onto their balance sheets.

Yesterday, Standard Chartered said that it would buy the debt issued by Whistlejacket if there was insufficient appetite in the credit market for the paper, helping it to pay exiting investors. Without this cash, Whistlejacket may have been forced to sell its underlying assets for less than they were worth to free up capital to pay them.

Whistlejacket assets are now worth about $7 billion, down from $18 billion at the end of August, having plunged after Standard Chartered sold some of its assets, which include asset-backed securities, bonds, collateralised debt obligations (CDOs) and investments in the troubled monoline insurers including MBIA and Ambac.

Standard Chartered was forced to write down the value of its own investment in the vehicle by $116 million after taking some of its assets on to its balance sheet.

Ratings agencies Standard & Poor’s and Moody’s said that Standard Chartered’s ratings were unaffected because of its strong liquidity and the high quality of Whistlejacket’s assets.

Meanwhile, HSBC said yesterday that it was negotiating with income note holders – the most junior investors in Cullinan. HSBC wants them to exchange their Cullinan holdings for investments in two new vehicles, called Mazarin and Barion, in an attempt to downsize its $27.1 billion SIV.

The bank will provide backstop liquidity to Mazarin, an asset-backed commercial paper vehicle, if it cannot sell its paper in the markets. Barion is a long-term investment vehicle entirely backed by HSBC. If the Cullinan investors agree, HSBC will move some of its assets to the two new vehicles.

An HSBC spokesman said that the initial response from Cullinan investors had been “very positive”. HSBC plans to move Cullinan and another SIV, Asscher, that contains $6.5 billion worth of assets, on to its balance sheet.

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