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CDS report: Bank bounce

Royal Bank of Scotland and Halifax-Bank of Scotland were two of the biggest improvers in credit derivatives markets Monday morning even as shares in both tanked after the finalisation of the UK government plan to inject both groups with fresh capital.

The falling cost of protection for most leading banks and insurers in Europe helped the iTraxx investment grade index to rally sharply, taking 6.3 basis points of the spread to 131.8bp, according to data from markit Group. This mimicked the wave of relief that swept stock markets broadly in Europe, although the dilutive effect of the measures on RBS and HBoS shareholders saw their stocks pummelled.

However, RBS led the way in credit default swap markets with its cost of protection dropping about 44.5bp to about 144.2bp, according to Markit, which means it costs €144,200 annually to insure €10m worth of debt over five years. UBS was next, 31.3bp lower at 185bp, while HBoS followed 31.2bp tighter at 155.8bp.

Swiss Re and Barclays finished off the top five, with Deutsche Bank, Santander, Banco Espirito Santo, Credit Suisse, UniCredit and BBVA all in the top twenty.

For the UK banks the moves are too late to help their mean CDS spread over the year to October 7, which the government will use to set their cost of funds from the facilities in its schemes.

Analysts at Dresdner Kleinwort said the UK capital raising news in combination with announcements made by many European countries to support their banks in the form of capital injections or or guaranteeing their borrowings in various ways should bring some stability back in the system.

“We are not claiming that we have seen the trough in the market, as we need more confidence in whether the interbank loan market will start functioning again, but the actions today are supportive in our opinion,” they said.

There were some losers in the CDS markets, with Arcelor Mittal Finance the worst performer, 26.1bp wider at 467.5bp, and car industry names such as Continental, Daimler, BMW and VW also worse off.

This entry was posted by Paul J Davies on Monday, October 13th, 2008 at 12:21 and is filed under Capital markets. Tagged with , . You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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Comments

  1. Oct 13   23:02 Posted by harry_w [report]

    Are CDS rates publicly available? Should they be, for market efficiency and all that?

  2. Oct 13   19:03 Posted by Kamekon [report]

    Re sovereign CDSs - Alea gives the following quotes for 5y CDSs:
    UK- 46.5 (flat since Friday)
    USA – 28 (down from 33 on Friday)
    Germany – 23.7 (down from 26.5 on Friday)

    http://www.aleablog.com/sovereign-cds-update/

  3. Oct 13   15:34 Posted by maximus [report]

    Tim Congdon in highly defiant mood on the World at One today, laying a good deal of blame at the regulatory framework as much as banks and customers. Forced me to go back to Basel II and look at what was put forward again here is Sir Andrew Large in 2003 . Worth a read. http://tinyurl.com/3fe76o

  4. Oct 13   13:46 Posted by Anonymous [report]

    Ukraine 5 Year senior is wider by about 4% at 1691.7 according to CMA DataVision

  5. Oct 13   13:26 Posted by Paul J Davies [report]

    Have to admit to a tweak to change the fact that today’s CDS moves would help UK banks in funding costs from government’s credit guarantee scheme - they won’t. Scheme takes average of CDS spread over the year to Oct 7….

    Kamekon - I don’t have today’s Soveriegn moves to hand, will make some enquiries, but much of what is happening I think has been priced in: UK spread almost doubled to about 47bp over the past fortnight; Germany spread more than trebled to just shy of 30bp in same time…

  6. Oct 13   13:11 Posted by J Barry [report]

    MUFJ invest $9bn for 21% of the voting rights of MS

  7. Oct 13   13:00 Posted by Kamekon [report]

    Any significant moves in the sovereign segment of the CDS market?

  8. Oct 13   12:50 Posted by Le Canard enchainé [report]

    socGen down more than 10% after rumors of huge losses in derivatives and in newly acquired russian bank Rosbank reports AFP

    http://tinyurl.com/3vdzzz

  9. Oct 13   12:47 Posted by bsb [report]

    this is good news and this is probably what the press should be reporting - tentative signs that the bailout is being well received by the markets. but of course they won’t - they’ll be reporting the further falls in rbs/hbos stock price, ignoring the fact that this is probably largely down to the dilutative effect of the govt stake taking.

  10. Oct 13   12:46 Posted by praxis22 [report]

    Germany giving EU 500bn in guarantees to banks

This post is closed to further comments.