Monday, November 19, 2007


It's nice to actually see the refreshingly honest word "wager" crop up in the business press.

The credit default swaps, or CDS, of Citigroup were quoted at a midpoint of 90 basis points versus a close of 81.5 basis points on Friday, Spink said. This means that a buyer of credit protection would have to pay $90,000 per year for a five-year period to protect against default $10 million of Citigroup bonds.

Bear Stearns Cos.' (BSC) CDS were quoted at 175 basis points, versus a close of 155 basis points Friday; Merrill Lynch & Co.'s (MER) were 15 basis points wider at a midpoint of 142 basis points, and Morgan Stanley's (MS) were 18 wider at 122.5 basis points.

The CDS are privately negotiated contracts that allow investors to wager on a company's creditworthiness.

At the heart of the recent turmoil in financial markets has been the billions of dollars of write-downs by big banks and others due to their exposure to subprime-related investments such as collateralized debt obligations.

The worst, however, isn't over. In a conference call Monday, Goldman said it expected writedowns worth $130 billion in CDOs due to subprime exposure.