Swaps spreads for US banks and brokers widen

The cost of protection for US banks and brokers widened following a 17% plunge in third-quarter profits at Morgan Stanley and bleak forecasts by JP Morgan Chase on Tuesday that resulted in credit downgrades by rating agencies Standard & Poor’s and Fitch Ratings.

Senior credit protection for Morgan Stanley five-year debt widened 5-10 basis points yesterday to 85bp. Despite revenues falls of 11% to $4.6 billion, US traders said Morgan Stanley’s trading figures were better than some analysts had feared after JP Morgan’s earlier profit warning. Credit default swaps on senior protection for other Wall Street banks were about 3-5bp wider today. Protection for Lehman Brothers, Bear Stearns and Goldman Sachs was priced at 86/98bp, 80/90bp and 80/88bp today

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