thot the article below, from reuters, was interesting. i was considering it in light of noland's comments in his latest credit bubble bulletin of 12/8. here is the link if you haven't read his editorial.
prudentbear.com
(i am still wondering - less all the time, actually, where do all those money mkt. accts. live???)
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U.S. bank default swap costs rise amid credit fears
FRIDAY, DECEMBER 8, 2000 10:44:00 AM EST
By Tom Burroughes
LONDON, Dec 8 (Reuters) - Credit risk protection costs on large U.S. banks have risen in the last couple of days due to market worries about forecasts of rising bad debt, credit derivatives traders said on Friday.
In contrast, prices for telecoms credit derivatives have stabilised after weeks of escalation, except for Swedish mobile phone maker Ericsson LMEB which suffered early on Friday due to its links with Germany's MobilCom MOBG.
Britain's financial regulator on Thursday warned banks to be vigilant in managing their exposure to the increasingly indebted telecoms sector.
"The sector in play is mainly the U.S. banks. They were the most active names today," said Stratis Hatzistesaris, head of credit derivatives trading at Dresdner Kleinwort Benson in London.
Heavy losses for high tech firms and slowing U.S. growth have added to the pressure on the price of credit risk protection on U.S. banks. Default swaps are insurance-like contracts giving investors protection against default or other adverse events by a given issuer in exchange for a regular payment.
Default swap prices on banking giants like Bank of America BAC, Citicorp C and Chase Manhattan CMB have gained 10-20 basis points since Wednesday, after BoA said it would miss fourth quarter earnings forecasts due to loan losses, and slack investment and trading gains.
Hatzistesaris said five-year BoA default swaps had moved up by around 20 bps since Wednesday. In European morning trade the bid-offer spread was quoted at 75/85, he said. Default swaps on Citicorp and Chase were both 70/80, 10bps up on Wednesday.
"All of these names have traded repeatedly," he said.
In early 2000, default swap prices for the big U.S. financial houses were in the high 20s, he said. But the U.S.-led sell-off in high-tech stocks has created unease about the banking sector's exposure to technology firms and mounting provisions for loan losses have also damaged sentiment.
BoA has said it is budgeting for higher loan losses and credit costs in 2001. It expects nonperforming assets to be 20 percent higher in the fourth quarter than third-quarter levels.
Edward Marrinan, credit strategist at JP Morgan in London, said the market was getting edgy about U.S. banks.
"It is pretty clear that there is a growing concern about the situation in the U.S. banking industry, particularly in the light of the acknowledgement by Bank of America that they were thinking of upping forecasts for problem loans," he said.
---is this what they mean by a 'turkey shoot'? don
for anyone else out there who realizes he, or she, is not amongst the highly-educated ones who post here regularly i want to assure you that there is such a wealth of information available on-line that i feel i am actually starting to get an education in economics, weird subject that it is, and even beginning to understand some of the crap i read. luck to all who are unencumbered by too much higher education. |
