CDS spreads widen after stock markets crash

Following a volatile week of crashes across the world’s equity markets and fears of a global recession, the cost of credit protection on financials has risen further.

In the UK, five-year credit default swaps (CDSs) on Barclays widened to 135 basis points at 1200 GMT from 130bp at the close of last week, according to data from CMA DataVision. CDSs for Royal Bank of Scotland increased to 131.7bp from 125.8bp at the end of last Friday.

Lloyds TSB, still engaged in merger talks with fellow UK bank HBOS, saw its spreads reach 95.5bp from 95bp, while HBOS rose to 132.6bp from 128.9bp. HSBC’s spreads increased to 102.1bp from 90bp.

The same sentiment was felt towards French banks, with the cost of protection on Société Générale rising intraday to 106bp from 100bp and BNP Paribas increasing to 71bp from 70.5bp. Crédit Agricole’s spreads moved to 87bp from 83.3bp.

Dutch financial services group ING’s spreads also widened to 112.5bp from 110.8bp at the end of last week. Deutsche Bank’s CDSs reached 168.7bp from 165bp.

In the US, the cost of protection on Goldman Sachs climbed to 313.3bp at the close of trading on Friday, up from 274.9bp the day before. CDSs on Merrill Lynch widened to 220.4bp from 204.2bp. Morgan Stanley’s CDSs followed the trend, increasing to 419.2bp from 410bp.

Meanwhile, spreads on Wells Fargo - in the process of acquiring Wachovia – closed at 104.3bp last Friday, up from 96.9bp on Thursday. CDSs on Wachovia reached 129bp from 119.5bp and Citi’s spreads moved to 205.8bp from 190.8bp.

Diminishing market sentiment towards US insurers continued. AIG’s CDSs blew out to 2343.9bp on Friday, from 2001.7bp the day before. Spreads on XL Capital reached 1123.3bp from 1040.3bp, while those on MetLife moved to 704.26bp from 696.7bp.

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