The cost of credit protection on Anglo Irish Bank soared this week, rising to 679.1 basis points (bp) from 628.9 bp on July 3, as the bank announced plans to buy back billions of pounds and euros in Tier 1 and Tier 2 securities.
Anglo Irish was rescued on June 29 by a €3 billion capital injection from the Irish government - but the European Commission insisted that the bank halt coupon payments on its Tier 1 securities as a condition of accepting the aid.
According to figures from credit information specialist CMA Datavision, spreads across the rest of the banking sector were relatively unmoved this week. UBS went from 127.3bp to 140.2bp as the bank's wealth management arm prepared to face a Florida court next week over a demand for client identities from the US Infernal Revenue Service - which could potentially mean a massive payout as part of an out-of-court settlement. Credit Suisse widened slightly from 90.2bp to 97.9bp.
Among US banks, Bank of America tightened slightly from 211.7bp to 208.5bp, Citigroup tightened from 408.4bp to 397.7bp, and Goldman Sachs and JP Morgan were almost unmoved: Goldman went from 153.4bp to 154.9bp, and JP Morgan from 107.4bp to 102.5bp.
In Europe, Lloyds widened from 169.8bp to 180.6bp, but other UK banks saw less movement; Barclays narrowed 1.2bp to 135.9bp and RBS widened 1bp to 168.9bp.
And Italy's Banca Italease went from 465.2bp to 343.7bp after Banco Popolare announced it would try again to take over the troubled leasing specialist - the initial takeover period finished on July 1, with Popolare just short of the 90% threshold which would allow its bid to come into effect, but the offer will now be reopened, closing on July 15.
There was good news for bondholders from the credit rating agency Moody's, which changed its default rate forecast on Wednesday to predict a lower peak in defaults for global speculative-grade bonds. The default rate will peak at 12.8% in the last quarter of the year before falling to 6.0% by mid-2010, the agency said; three months ago, Moody's predicted that the default rate would peak at 14.6% in Q4. Western markets are forecast to perform worse than the average, however. The US speculative-grade default rate rose from 8% in Q1 to 11% in Q2, and will hit 12.8% in Q4, the agency forecast. Similarly, the European rate went from 4.5% to 5.6% and will peak at 15% in Q4. The European recovery is also expected to be slower: by Q2 2010, US speculative-grade bonds will be defaulting at only 5%, while European bonds will default at 12.5%.
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