Treasury Leadership Roundtable®
Financial Counterparty Credit Default Swaps Analysis
14 October 2008
The Treasury Leadership Roundtable is publishing this special edition of bank CDS analysis to provide members with
the most updated insights of financial counterparty risk from the credit market. Median CDS spread for the top 100
global syndicated loan banks declined from their September high of 151bps to 98pbs on October 14 after several
governments injected capital into major banks. As a result 16% of the institutions now have implied ratings higher
than their actual ratings, a dramatic change in two weeks. We welcome your feedback on this analysis and how we can
further support your counterparty risk analysis.
What’s Next?
CDS Spreads Continue to Signal Troubling Increases in Counterparty Risk
2007 Top 100 Global Syndicated Loan Underwriters' Credit Default Swap Spreads
Five-Year CDS Spreads, April 2007-October 14, 2008
350
300
250
CDS Spread (bps)
200
150
100
50
0
7
8
07
08
07
08
08
07
7
7
08
08
08
7
8
07
08
07
08
l-0
l-0
-0
-0
-0
-0
p-
p-
-
-
n-
n-
n-
b-
-
g-
g-
r-
r-
ov
ec
ay
ay
ar
ct
ct
Ju
Ju
Ju
Ja
Ju
Ap
Se
Fe
Ap
Se
Au
Au
O
O
M
N
D
M
M
3rd Quartile Median 1st Quartile Median for Non-Financial AA-Rated Companies
Source: Bloomberg; Treasury Leadership Roundtable Research.
Has the Other Shoe Dropped?
The Significant Increase in CDS Spreads Could Indicate Future Credit Rating Downgrades
Top 100 Global Syndicated Loan Underwriters’ Implied Credit Ratings*
October 14, 2008
Implied Downgrade
2007 Global Syndicated Loan CDS Spread CDS Market (No. of Notches Below
Underwriter Ranking by Volume* Current S&P Rating (October 14) Implied Rating Current)
1 JPMorgan Chase & Co AA- 93.36 A- 3
2 Citigroup Inc AA- 216.89 BB+ 7
3 Bank of America Corp AA- 103.09 A- 3
4 Royal Bank of Scotland PLC/The AA- 82.07 A 2
5 Deutsche Bank AG AA- 74.11 A 2
6 BNP Paribas AA+ 39.72 AAA -1
7 Goldman Sachs Group Inc/The AA- 319.49 BB+ 7
8 Credit Suisse Group A+ 73.59 A 1
9 Barclays Bank PLC AA 75.69 A 3
11 Wachovia Corp A+ 173.39 BBB 4
12 ABN Amro Bank NV AA- 69.44 AA -1
14 Societe Generale AA- 61.34 AA+ -2
15 Morgan Stanley A+ 1052.14 B 10
16 Merrill Lynch & Co Inc A 218.68 BBB- 4
17 HSBC (HSBC Finance Corp) AA- 372.35 BB+ 7
18 UBS AG AA- 141.87 BBB+ 4
19 ING Bank NV AA 101.65 A- 4
21 UniCredit SpA A+ 69.33 A+ 0
22 Dresdner Bank AG A 60.74 AA- -2
23 Commerzbank AG A 59.02 AA- -2
25 Mitsubishi UFJ Financial Group Inc A 97.79 A- 1
26 Natixis AA- 211.56 BBB- 6
28 Banco Santander SA AA 63.62 AA- 1
30 General Electric Capital Corp AAA 495.41 BB 11
31 Banco Bilbao Vizcaya Argentaria SA AA 58.49 AAA -2
32 Mizuho Corporate Bank Ltd A+ 110.53 BBB+ 3
33 Australia & New Zealand Banking Group Ltd AA 84.18 A 3
34 Bear Stearns Cos Inc/The n/a 113.45 BBB+ n/a
35 Fortis Bank SA/NV A 77.68 A 0
36 Intesa Sanpaolo SpA AA- 45.43 AAA -3
37 WestLB AG A- 69.26 A+ -2
38 Lloyds TSB Bank PLC AA 65.84 A+ 2
39 Wells Fargo & Co AA+ 120.08 BBB+ 6
* Latest CDS for certain banks are not available in Bloomberg.
Source: Bloomberg; Treasury Leadership Roundtable Research.
Has the Other Shoe Dropped?
The Significant Increase in CDS Spreads Could Indicate Future Credit Rating Downgrades
Top 100 Global Syndicated Loan Underwriters’ Implied Credit Ratings* (Continued)
October 14, 2008
Implied Downgrade
2007 Global Syndicated Loan CDS Spread CDS Market (No. of Notches Below
Underwriter Ranking by Volume* Current S&P Rating (October 14) Implied Rating Current)
41 Sumitomo Mitsui Banking Corp A+ 106.67 A- 2
42 Bank of Scotland PLC AA- 95.00 A- 3
43 National Australia Bank Ltd AA 84.92 A 3
44 Standard Chartered PLC A 81.39 A 0
45 Rabobank Nederland NV AAA 108.51 A- 6
48 Mediobanca SpA AA- 85.26 A 2
50 Westpac Banking Corp AA 81.68 A 3
52 Caja de Ahorros y Monte de Piedad de Madrid AA- 235.83 BBB- 6
53 Commonwealth Bank of Australia AA 79.23 A 3
57 Nordea Bank AB AA- 113.36 BBB+ 4
59 DBS Bank Ltd/Singapore AA- 126.25 BBB+ 4
60 Kookmin Bank A 535.05 BB- 7
63 Dexia Credit Local A+ 228.40 BBB- 5
67 Woori Bank A- 557.66 BB- 6
68 Skandinaviska Enskilda Banken AB A+ 110.00 BBB+ 3
69 National City Corp A- 2141.16 B- 9
70 Danske Bank A/S AA- 130.74 BBB+ 4
72 Svenska Handelsbanken AB AA- 78.94 A 2
73 Bank of China Ltd A- 258.41 BBB- 3
74 HSH Nordbank AG A 292.05 BB+ 5
77 Landesbank Baden-Wurttemberg A+ 93.50 A- 2
87 Bank of Ireland A+ 106.68 A- 2
97 Banco Comercial Portugues SA A 61.65 AA- -2
99 Allied Irish Banks PLC A+ 88.30 A 1
* Latest CDS for certain banks are not available in Bloomberg.
Source: Bloomberg; Treasury Leadership Roundtable Research.
Questions for Discussion
• What specifically are the things that you are doing to prepare for an eventual
bankruptcy on the part of a banking partner?
• What are you doing now to protect the health of your bank relationships in
the coming years? How are you thinking about structuring your bank group
that would be different than the prevailing wisdom of the last several years?
• What is a prudent way to think about liquidity if indeed credit commitments
might be rescinded or unavailable over the next 12 months?
• What do you believe will be the go-forward impact on pricing and credit
terms? What will happen to pricing on other bank services like debt issuance
or even cash management?
Source: Treasury Leadership Roundtable Research.