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Le hurricane AIG arrive à force 5.
Systémiquement inquiétant.
Bond Risk at Record on AIG's $441 Billion Counterparty Concern
By Abigail Moses
Sept. 16 (Bloomberg) -- American International Group Inc.'s ratings cut drove the cost of default protection on Wall Street banks to a record on concern that the insurer needs more cash to back $441 billion of credit derivatives.
Credit-default swaps on Morgan Stanley, Goldman Sachs Group Inc., Wachovia Corp. and Citigroup Inc. all traded at record highs as investors sought to hedge against losses on financial companies and to replace hedges they had with Lehman Brothers Holdings Inc., which filed for bankruptcy early yesterday. Contracts on AIG, the biggest U.S. insurer, and Washington Mutual Inc., the biggest U.S. savings and loan, rose further into distressed levels on concern ratings downgrades will cripple the companies.
AIG may have to post as much as $17 billion in collateral after the company was downgraded yesterday, UBS AG analysts said. The biggest U.S. insurer by assets is seeking as much as $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co., after posting $18 billion in losses over the past three quarters, according to two people familiar with the situation.
``If AIG goes under, there could be a domino effect,'' said Andrea Cicione, a credit strategist at BNP Paribas SA in London. ``AIG is very connected to the financial system and it is very connected to the real economy.''
CDX North America
Credit-default swaps on the Markit CDX North America Investment Grade Index jumped as much as 25 basis points to a record 220, and was quoted at a mid-price of 216.5 as of 8:41 a.m. in New York, according to broker Phoenix Partners Group.
Buyers of protection on AIG paid a record 49 percent upfront and 5 percent a year, according to Phoenix. It was last quoted at a mid-price of 52 percentage points. The 49 percent trade was up from 33 percent yesterday and means it cost $4.9 million in advance and $500,000 a year to protect $10 million in bonds for five years.
Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates a deterioration in the perception of credit quality; a decline signals the opposite.
Debt Protection
AIG insured $441 billion of fixed-income assets, including $57.8 billion in securities tied to subprime mortgages in the credit-default swaps market. Losses and writedowns triggered by the U.S. housing crisis caused the company's market value to shrink 93 percent since 2006, when it ranked among the world's five biggest financial companies.
Standard & Poor's lowered AIG's long-term counterparty rating three grades to A- from AA-, citing a ``combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.'' Moody's Investors Service and Fitch Ratings also cut their ratings.
The downgrades will likely result in ``more than $17 billion'' in collateral calls, UBS analysts led by Andrew Kligerman in New York said in a note to investors today.
Credit-default swaps on Morgan Stanley jumped 375 basis points to 850 basis points, according to Phoenix.
Contracts on Wachovia, the fourth-biggest U.S. bank, rose 135 basis points to 753, CMA Datavision prices show. Goldman Sachs surged 163 to 513. Citigroup jumped 78 basis points to 358 and JPMorgan Chase & Co. climbed 51 to 246.
Bank of America
Bank of America Corp., which agreed to buy Merrill, the world's biggest brokerage firm, for about $50 billion, increased 47 basis points to 252 basis points. JPMorgan rose 40 basis points to 235 basis points. Citigroup climbed 76 basis points to 356 basis points.
``If AIG spirals in the same way as Lehman, the ramifications will be much more substantial,'' said Jim Reid, head of fundamental credit strategy at Deutsche Bank AG in London. ``The rating downgrades have accelerated the need for an imminent response.''
Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings climbed 28 basis points to 152, the highest in six months, JPMorgan prices show. In Tokyo, the Markit iTraxx Japan index rose the most since 2004, increasing 49 basis points to 179, Morgan Stanley prices show.
The Markit iTraxx Crossover Index of 50 European companies with mostly high-risk, high-yield credit ratings climbed 44 basis points to 638.
Systémiquement inquiétant.
Bond Risk at Record on AIG's $441 Billion Counterparty Concern
By Abigail Moses
Sept. 16 (Bloomberg) -- American International Group Inc.'s ratings cut drove the cost of default protection on Wall Street banks to a record on concern that the insurer needs more cash to back $441 billion of credit derivatives.
Credit-default swaps on Morgan Stanley, Goldman Sachs Group Inc., Wachovia Corp. and Citigroup Inc. all traded at record highs as investors sought to hedge against losses on financial companies and to replace hedges they had with Lehman Brothers Holdings Inc., which filed for bankruptcy early yesterday. Contracts on AIG, the biggest U.S. insurer, and Washington Mutual Inc., the biggest U.S. savings and loan, rose further into distressed levels on concern ratings downgrades will cripple the companies.
AIG may have to post as much as $17 billion in collateral after the company was downgraded yesterday, UBS AG analysts said. The biggest U.S. insurer by assets is seeking as much as $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co., after posting $18 billion in losses over the past three quarters, according to two people familiar with the situation.
``If AIG goes under, there could be a domino effect,'' said Andrea Cicione, a credit strategist at BNP Paribas SA in London. ``AIG is very connected to the financial system and it is very connected to the real economy.''
CDX North America
Credit-default swaps on the Markit CDX North America Investment Grade Index jumped as much as 25 basis points to a record 220, and was quoted at a mid-price of 216.5 as of 8:41 a.m. in New York, according to broker Phoenix Partners Group.
Buyers of protection on AIG paid a record 49 percent upfront and 5 percent a year, according to Phoenix. It was last quoted at a mid-price of 52 percentage points. The 49 percent trade was up from 33 percent yesterday and means it cost $4.9 million in advance and $500,000 a year to protect $10 million in bonds for five years.
Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates a deterioration in the perception of credit quality; a decline signals the opposite.
Debt Protection
AIG insured $441 billion of fixed-income assets, including $57.8 billion in securities tied to subprime mortgages in the credit-default swaps market. Losses and writedowns triggered by the U.S. housing crisis caused the company's market value to shrink 93 percent since 2006, when it ranked among the world's five biggest financial companies.
Standard & Poor's lowered AIG's long-term counterparty rating three grades to A- from AA-, citing a ``combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.'' Moody's Investors Service and Fitch Ratings also cut their ratings.
The downgrades will likely result in ``more than $17 billion'' in collateral calls, UBS analysts led by Andrew Kligerman in New York said in a note to investors today.
Credit-default swaps on Morgan Stanley jumped 375 basis points to 850 basis points, according to Phoenix.
Contracts on Wachovia, the fourth-biggest U.S. bank, rose 135 basis points to 753, CMA Datavision prices show. Goldman Sachs surged 163 to 513. Citigroup jumped 78 basis points to 358 and JPMorgan Chase & Co. climbed 51 to 246.
Bank of America
Bank of America Corp., which agreed to buy Merrill, the world's biggest brokerage firm, for about $50 billion, increased 47 basis points to 252 basis points. JPMorgan rose 40 basis points to 235 basis points. Citigroup climbed 76 basis points to 356 basis points.
``If AIG spirals in the same way as Lehman, the ramifications will be much more substantial,'' said Jim Reid, head of fundamental credit strategy at Deutsche Bank AG in London. ``The rating downgrades have accelerated the need for an imminent response.''
Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings climbed 28 basis points to 152, the highest in six months, JPMorgan prices show. In Tokyo, the Markit iTraxx Japan index rose the most since 2004, increasing 49 basis points to 179, Morgan Stanley prices show.
The Markit iTraxx Crossover Index of 50 European companies with mostly high-risk, high-yield credit ratings climbed 44 basis points to 638.
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