Citigroup, JPMorgan Chase, & Bank of America Help Design $100 Billion Fund

Wall Street Journal reported today that Citigroup, JPMorgan Chase, and Bank of America, the three largest US banks with the backing of the US Treasury Department, have agreed on the structure of a 100 billion dollar super fund designed to help unblock the credit markets.

The fund is designed to buy certain assets from structured investment vehicles to prevent them from being sold at fire-sale prices. Some are skeptical that such a fund could actually cure the source of the credit crisis which is loans going bad. However, this influx of money should help make up for the 163 billion dollars that fled US securities in August at the height of the subprime meltdown. Much of this money came from foreign investors dumping long-term securities and equities. Foreign purchase of corporate debt have been the biggest source of capital needed to fund the massive current deficits.

This extra money from the super fund comes as banks worldwide are expected to lose as much as 400 billion dollars from subprime mortgages. These mortgages are on average one out of every mortgages to go into default. Numbers are coming out from the the larger lenders for third quarter reports and they’re not looking good. Citigroup was estimated to report large third quarter losses last week. HSBC will be releasing it’s report on Wednesday and is estimated to reveal a new 1 billion dollar hit. Countrywide also announced last Friday that if their credit rating dropped below its current rating it would severely limit its access to the public corporate debt market. This would also make them face more restrictive terms and higher rates when they renegotiate or refinance its existing borrowers.

To read more about banks reel from credit crisis, but hope for rescue head on over to CNBC.