Special Report: US vs. European Banks CDS

The S&P/ISDA CDS U.S. Financials Select 10 Index held steady widening by a diminutive amount [3bps] for the month of March. The same cannot be said for the S&P/ISDA CDS European Banks Select 15 Index whose spread widened by 35bps in tandem with the news of the banking crisis in Cyprus.

Cypriot banks remained closed fo r a week while the general public waited in long lines to withdrawal a maximum of €300 per person, per day, per bank. It has been reported that the Bank of Cyprus may impose a loss of as much as 60% on accounts above €100,000 in holdings. The country’s second largest bank, Cyprus Polular Bank will be split into a “good” and “bad” bank. The Cyprus government has a €l.L.j billion bond maturing in June [3.75% 6/3/2013] for which funds will be needed. European officials have been taking action to avoid any additional debt problems. To date there have been problems with Cyprus, Greece, Portugal, Ireland and Spain which have all required bailouts.

Constituents to the index such as Banca Monte dei Paschi di Siena and Banco Popolare widened by more than lOObps as their BBB- credit rating puts them right on the cusp of losing an investment grade rating. UniCredit bank paper rated ‘BBB+’ widened by an average of l.jlbps. Single ‘A’ rated and above issuer’s spreads also widened t hough not as dramatic as the ‘BBB’ rated issuers. On average the ‘double A’ and ‘single A’ members of the S&P/ISDA CDS European Banks Select 15 Index were 20bps wider and include some key European banking names such as: Bank of Scotland, Barclays Bank, BNP Pari bas, Commerzbank, Credit Agricole, Credit Suisse Group, Deutsche Bank, HSBC Bank, Lloyds TSB Bank, Royal Bank of Scotland, Societe Generale and UBS.

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