The cost of credit protection on US banks continued to rise yesterday, following Treasury secretary Timothy Geithner announcing a plan to relieve US banks of toxic assets on March 23. Some analysts believe Geithner's plan still lacks detail, particularly with regard to how it will interact with other government schemes aimed at bolstering the US economy.
Five-year senior credit default swap (CDS) spreads referencing Bank of America widened from 293.5 basis points at close of trading on Tuesday to 330bp last night. Elsewhere, CDSs on Wells Fargo jumped from 214.4bp to 248.3bp; spreads referencing Citi moved out from 540bp to 559.2bp; CDSs on JP Morgan widened to 183.3bp from 169.8bp; the cost of credit protection on Goldman Sachs rose from 258.2bp to 272.9bp; and spreads referencing Morgan Stanley moved out to 375.9bp from 363.4bp.
The cost of credit protection on UK financials began to fall this morning, having seen slight rises across the board yesterday. CDSs referencing Lloyds TSB narrowed from 186.8bp last night to 183.1bp at 10:30am GMT, according to data from credit information specialist CMA Datavision. Barclays - which is negotiating the sale of its iShares asset management business - saw its CDSs move in to 194.6bp from 195bp. CDSs on HSBC - which announced yesterday it could slash up to 1,200 UK jobs - narrowed to 140bp from 141.5bp. Spreads referencing Royal Bank of Scotland also tightened, from 192.5bp to 188.1bp.
CDSs referencing Swiss financials also narrowed this morning. Spreads on UBS dropped to 230.1bp from 235bp, and CDSs on Credit Suisse - which reported losses of Sfr8.2 billion for 2008 this week - moved in from 184.7bp to 182.6bp.
German stalwarts Commerzbank and Deutsche Bank also saw their spreads tighten this morning. CDSs referencing Commerzbank narrowed from 130bp to 129.2bp, while spreads on Deutsche Bank moved in to 125bp from 127.5bp.
Meanwhile, the cost of credit protection on French bank BNP Paribas fell this morning, from 99.7bp to 98.5bp. In contrast, CDSs referencing local rival Société Générale moved out from 112bp to 115.5bp.
World equity indexes have had a mixed performance so far in today's trading. As of 2:20pm GMT, London's FTSE 100 index was down 0.12% at 3,895.68; Paris's Cac 40 index had fallen 0.65% to 2,874.61; and Frankfurt's Dax index was up 0.31% to 4,236.19. In the US, early trading pushed the S&P 500 index up 0.62% to 818.89.
Meanwhile, the Asian markets made gains in overnight trading. Hong Kong's Hang Seng index reached 14,108.98 at close today, a gain of 3.57%, while Tokyo's Nikkei 225 index was up 1.84% at 8,636.33.
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