Trading activity in European credit markets began on a quiet note again on Wednesday, with little news to excite apart from Credit Suisse’s announcement of a larger than forecast loss of SFr8.22bn (€5.5bn), traders said. Credit indices were slightly weaker, with the iTraxx Crossover list of junk-rated companies around 4.9bp wider at 1030.6bp and the iTraxx main index of high grade companies was at 151.5bp, around 2.25bp out from Tuesday evening, according to Markit.
Sentiment was dented by dismal performance on Wall Street as the US government’s bank bailout plan presented by Treasury Secretary Timothy Geithner failed to convince investors, traders said.
Credit Suisse, Switzerland’s second largest bank, blamed its worst ever annual performance on heavy trading losses and said it had logged up to SFr 600m in restructuring charges during the fourth quarter of 2008.
Credit default swap spreads for Credit Suisse, which measure the cost of insuring against a potential default, rose marginally by 2.56bp to 163.77bp-166.33bp, according to Markit. Banking peer UBS was a tad wider on Wednesday and was at 262.9bp-263bp on Wednesday. UBS, currently the biggest bank in Switzerland, announced a staggering SFr20bn annual loss – the biggest ever in Swiss corporate history on Tuesday.
Among junk-rated credits, market partcipants were closely watching developments at petrochemicals multinational LyondellBasell, after a temporary court injunction was placed against a subset of Lyondell creditors earlier this week.
Since Lyondell’s bankruptcy filing in January, disgruntled holders of the company’s so-called Nell bonds, which have guarantees against Lyondell’s European subsidiaries, have been examining ways of exercising their claims against the group’s solvent European subsidiaries as part of an attempt to trigger payment rights on credit default swap contracts they hold.
These creditors planned to participate in a conference call organised by a law firm yesterday to discuss ways of contesting the US court order, but the call was rescheduled at the eleventh hour to today due to an “overwhelming volume of interest”, a trader said.
CDS spreads for LyondellBasell have been hovering around the 7000bp range, assuming a 5 per cent recovery for the bonds, traders said, noting that the bonds have indicated around 5-6 without accrued interest, implying that the market is pricing in a risk that the next bond coupon due on 15 February may not be paid. However, the payment will probably be made as Lyondell is anxious to avoid triggering any default, a trader said.