The cost of credit default swap contracts on Wachovia Corp.'s debt tightened quickly Friday morning after Well Fargo & Co. rode into Charlotte, N.C., with a $15.1 billion offer to steal the bank right out from under Citigroup Inc., which is now
threatening to take legal action to enforce its government-brokered deal.
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Reuters reports that the spread on Wachovia's five-year swaps fell
about 144 basis points to about 249 basis points, or $249,000 a year to
protect $10 million of debt, according to data from Phoenix Partners
Group. Investors remained fairly confident on Wells Fargo stability, as
its five-year credit default swaps only rose 22 basis points to
roughly 178 basis points.
The Wells Fargo offer is turning out to be good for the credit default
swaps of other banks as well, with the cost of insurance contracts
against default by both Goldman, Sachs & Co. and Merrill Lynch &
Co. each falling by more than 20 basis points.
Credit default swaps are
a measure of how likely the market thinks the issuer may default on its
debt. - George White
See Reuters story
See Dealscape post on Wells Fargo offer
Comments
Do you have a Private mortgage insurance (PMI) policy? If you do have one your PMI insurer passes their risk to others by bundling 100 policies together and selling them as a credit default swaps (CDS). They do this in order to protect themselves by large payment to mortgage providers such as insurers in the event your home is repossessed. In the mortgage industry this has been the case for decades. If you bought a PMI to protect your lender then you are building the CDS market. To avoid this put at least 20% down on your home or pay what it takes now to get rid of the PMI policy. http://nomedals.blogspot.com