A default by CIT, the troubled US commercial lender, could trigger widespread losses for investors in the $600bn market for synthetic collateralised debt obligations. CIT is the second most widely referenced company in synthetic CDOs after Volkswagen, with almost two-thirds of those rated by Standard & Poor’s in Europe including it in their portfolios of credit default swaps. While many investors are already believed to have made writedowns against their CDO investments, analysts warn that a potential bankruptcy of CIT could have a psychological impact as a reminder of the potential systemic risk posed by structured credit products. “We are likely to be reminded of the high concentration of risks in the CDO market as defaults rise in the coming months,” said Michael Hampden-Turner at Citigroup in London.

This entry was posted by Paul Murphy on Wednesday, July 15th, 2009 at 3:14 and is filed under Capital markets. Tagged with CIT. Edit this entry.