Lower down here is an email I sent to a colleauge regarding a dinner I attented on Oct 22nd where the President of the AMEX, Wolkoff was the featured speaker. He gave a first rate talk and is a very smart guy but I was surprised at his response in the Q & A to my querry regarding Credit Default Swaps and counterparty risk.
My question was did he think there was enough market transparency and real time market knowledge as to the Counterparty Risk that exists in Credit Default Swaps and what potential negative impact could it have on AMEX listed companies,
the very thought provoking thing about the article below is that the CEO of the AMEX, who also had been the Chief Operating Officer of Nymex, the worlds biggest energy and precious metal futures exchange, said that this market had stopped trading several weeks ago.
( as per his response to my question about counterparty risk and real time info in the market community when it comes to credit default swaps)
So you have a really sharp ( and the guy is) Wall street regulatory leader who does not really and completely understand the extent and the Depth of credit instruments involved in this Debt Meltdown of 2007. And does not really know the exposure his listed companies have to defaults in these instruments.
he has companies with a 40 billion market cap etc and so many would be impacted upon the insolvency of some of these major banks, Major Investment Banks and Broker Dealers.
This is going to be a wicked bad upcoming 2 to 4 quarters for the economy and different asset classes
John
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Merrill, Citigroup Debt Risk at 5-Year High on Subprime Concern
By Shannon D. Harrington
Nov. 2 (Bloomberg) -- The risk of Merrill Lynch & Co. and Citigroup Inc. defaulting on their debt rose to the highest in at least five years on speculation that losses on mortgage-related securities will worsen, trading in credit-default swaps shows.
Credit-default swaps on Merrill Lynch, the third-largest U.S. securities firm, rose after a Deutsche Bank AG analyst said the firm may write down $10 billion more in assets linked to mortgage debt. A gauge of credit risk in the U.S. reached an eight-week high, while a benchmark for European bank and insurance debt surpassed the broader market for the first time in three years.
``The financial sector is and will continue to be under pressure,'' said Peter Plaut, an analyst at New York-based hedge fund manager Sanno Point Capital Management LLC. ``Weakness in housing, continued markdowns in portfolio securities and higher provisions for consumer delinquencies will weigh on performance.''
Merrill Lynch credit-default swaps climbed 15 basis points to 120 basis points and earlier traded as high as 135 basis points, according to broker Phoenix Partners Group in New York. Citigroup, the largest U.S. bank, rose as much as 9 basis points to 70 basis points, while Goldman Sachs Group Inc., the world's biggest securities firm, climbed 15 basis points to 90 basis points.
Credit-default swaps are used to speculate on a company's ability to repay its debt or hedge against losses. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
Merrill Lynch Losses
Merrill Lynch, which last week reported an almost $8 billion writedown on securities tied to subprime mortgages, may mark down more for losses on collateralized debt obligations, Deutsche Bank analysts said today. Regulators also may be investigating whether New York-based Merrill Lynch violated accounting rules to delay reporting of the losses, the Wall Street Journal reported today.
``We have increasingly lost confidence in the financials of Merrill,'' Deutsche Bank equity analyst Mike Mayo in New York wrote in a note to clients today. ``Our concern is relying on a company's statements that has no CEO and is facing a potential SEC investigation and may have engaged in questionable private transactions.''
Merrill Lynch said it has ``no reason to believe'' the firm made trades designed to hide losses tied to subprime mortgages.
Credit-default swaps on Merrill Lynch are now trading as if the company was rated below investment-grade, according to data from the credit strategy group at Moody's Investors Service. Moody's lowered its rating on Merrill Lynch one level on Oct. 24 to A1, which is six levels above the investment-grade threshold.
Citigroup is trading as if it were rated Baa3, the lowest investment-grade rating, and eight levels below its actual senior unsecured debt ranking by Moody's, the data show.
Credit Suisse, Bear
Merrill Lynch's writedown was the largest of at least $30 billion worldwide by the largest banks and securities firms as record defaults by the least creditworthy U.S. home loan borrowers roiled the market for securities based on the loans.
Zurich-based Credit Suisse Group, Switzerland's second- largest bank, yesterday reported $1.9 billion of third-quarter writedowns, including for mortgage-linked securities. This week, Deutsche Bank, Germany's biggest lender, wrote off $3 billion linked to subprime debt, and UBS AG marked down $4.4 billion.
Contracts on New York-based Bear Stearns Cos., the securities firm that in September reported a 61 percent drop in profit because of losses in its fixed-income business, widened 31 basis points to 169 basis points, according to Phoenix.
The CDX North America Investment Grade Series 9 Index, a benchmark for the cost to protect debt, rose 2.25 basis points to 69.5 basis points and earlier rose as high as 71 basis points, according to Deutsche Bank AG. The index has climbed 9 basis points in the past two days.
Jobs Data
The iTraxx Financial Index, a benchmark for the cost of protecting bank and insurance company debt against default, rose as much as 7 basis points to 47 basis points and earlier traded as much as 1.75 basis points higher than the iTraxx Europe index of 125 investment-grade companies, according to prices from JPMorgan Chase & Co. The financial index has averaged 17.5 basis points less than the Europe index since 2004 because investors perceive bonds sold by banks to be less risky.
A Labor Department report showing U.S. employers added a greater-than-expected 166,000 jobs last month, after an increase of 96,000 in September, led to a brief rally in the indexes before traders refocused on credit concerns.
The data is ``not helpful and probably harmful to our markets, because it justifies the Fed sitting on their hands for some period of time, waiting for the financial calamities of the last several months to filter through to the real economy,'' said Robert Calhoun, who oversees about $50 billion as chief investment officer, at Tattersall Advisory Group in Richmond, Virginia.
Bond Insurers
The LCDX Series 9 index, a gauge of confidence in the U.S. high-yield, high-risk loan market that falls as investor sentiment deteriorates, dropped 0.15 point to 97.65 and earlier reached 97.45, the lowest since the latest series began trading Oct. 3, according to Goldman Sachs Group Inc. The LCDX has fallen 2.7 percent the past three weeks.
The deepening credit concerns sent risk premiums for other companies with subprime mortgage exposure wider for a second day.
Credit-default swaps tied to MBIA Inc., the world's biggest bond insurer, rose 60 basis points to 480 basis points, the widest in at least three years, according to CMA Datavision in New York.
Ambac Financial Group Inc., the second-biggest bond insurer, climbed 63 basis points to 689 basis points, CMA prices show.
``As the credit market continues to weaken, our confidence that guarantors will survive the credit meltdown is waning,'' said Ken Zerbe, an analyst at Morgan Stanley in New York who today lowered his rating on the companies' shares to `in-line'' from ``attractive.''
To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net ; |
