CDSs on European financials widen

As equity markets tumbled this morning amid fears the US government would not extend further aid to the auto industry, the cost of credit protection on European banks rose.

Of the major UK banks, Royal Bank of Scotland was worst hit: five-year senior credit default swap (CDS) spreads referencing the bank moved out from Friday's close of 188.1 basis points to 198bp as of 11:00 BST, according to data provided by credit information specialist CMA Datavision.

Spreads referencing Barclays - which will not need to subscribe to the UK government's asset protection programme according to media reports - widened from 194.8bp to 203.5bp and CDSs on HSBC jumped to 146.6bp from 139.8bp. Meanwhile, Lloyds saw its CDSs move out from 187.1bp to 191.6bp.

The cost of credit protection on other European banks also increased this morning. In France, Société Générale saw its spreads widen to 116.2bp from 111.4bp, while CDSs referencing local rival BNP Paribas moved out from 101.3bp to 107.6bp.

In Germany, the cost of credit protection on Deutsche Bank rose from 120bp to 127.5bp, and CDSs on Commerzbank climbed from 130bp to 132.6bp. Over the border in Switzerland, spreads referencing Credit Suisse jumped to 183.7bp from 176bp, while CDSs on UBS moved out to 232.5bp from 229.1bp.

Equity markets made losses across the board this morning. London's FTSE 100 stood at 3,815.11 as of 11:40 BST, a fall of 2.15%; Paris' Cac 40 index was down 2.63% at 2,765.87; and Frankfurt's Dax index had fallen 3.28% to 4,065.59.

With Japan and Hong Kong's benchmark equity markets falling almost five per cent in overnight trading, the cost of credit protection on Asian sovereigns rose this morning. CDSs referencing China moved out from 150bp at close on Friday to 161.9bp as of 11:00 BST today and spreads on the Philippines widened to 367.5bp from 342.5bp. The cost of credit protection on Malaysia increased to 249.5bp from 229bp; and CDSs referencing Thailand moved out to 245bp from 224.8bp.

US auto manufacturers Ford and General Motors (GM) were trading up front today, meaning a buyer of protection on either company would have to pay 500 basis points in addition to a large percentage of the contract up front. As of 15:05 BST, GM was trading at 79.4% compared with Friday's close of 76.1%, while Ford stood at 68.3%, up from 65.95%.

See also: CDSs on banks under UK asset protection programme widen