CDSs on US banks tighten

The cost of credit protection on US banks fell yesterday, in the week US Treasury secretary Timothy Geithner asserted "the vast majority" of the nation's banks are well-capitalised.

Five-year senior credit default swap (CDS) spreads referencing Citi - which reported a first-quarter net profit of $1.6 billion on April 17 - moved in from 606.8 basis points at close on Wednesday to 577.6bp at close of trading yesterday. CDSs on Wells Fargo tightened from 262.1bp to 241.8bp. Elsewhere, Bank of America saw its CDS narrow to 277bp from 288.8bp and spreads referencing JP Morgan tightened to 170.6bp from 177.5bp.

The cost of credit protection referencing major European financial institutions remained largely unchanged this morning. Among UK banks, Royal Bank of Scotland saw its spreads move the most, tightening from yesterday's close of 196.3bp to 190.7bp as of 10:55am BST, according to data provided by credit information specialist CMA Datavision.

On the continent, spreads referencing Deutsche Bank narrowed to 142.7bp from 144.9bp. French bank Société Générale also saw its spreads move in, from 113.6bp to 110.3bp.

In Belgium, spreads referencing Fortis Bank moved in from 295bp to 271.6bp, after Belgian prime minister Herman Van Rompuy pledged yesterday to keep the bank in state ownership if shareholders reject the sale of 75% of the bank to BNP Paribas.

CDSs referencing Japanese bank Daiwa Securities tightened this morning from 280bp to 250bp, despite media reports it is expecting a ¥100 billion ($1.03 billion) loss for 2008. The other big tightener was miner Rio Tinto, which saw its CDSs narrow from 566.2bp to 506.7bp. Elsewhere, Volvo - which reported a Q1 loss of Skr4.53 billion ($550 million) today - saw its spreads widen from 335.7bp to 356.9bp.

See also: CDS spreads tighten on financials

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