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
Ju l-0 7 Ju n07 Ja n08 Fe b08 Se p07 Ju n08 Ju l-0 8 07 ov -0 7 08 08 Se p08 ec -0 7 ct -0 7 Au g07 M ay M ay Au g08 M ar Ap rAp rct -0 8 O 07 08
O
N
3rd Quartile
Median
1st Quartile
Median for Non-Financial AA-Rated Companies
D
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
2007 Global Syndicated Loan Underwriter Ranking by Volume* JPMorgan Chase & Co Citigroup Inc Bank of America Corp Royal Bank of Scotland PLC/The Deutsche Bank AG BNP Paribas Goldman Sachs Group Inc/The Credit Suisse Group Barclays Bank PLC Wachovia Corp ABN Amro Bank NV Societe Generale Morgan Stanley Merrill Lynch & Co Inc HSBC (HSBC Finance Corp) UBS AG ING Bank NV UniCredit SpA Dresdner Bank AG Commerzbank AG Mitsubishi UFJ Financial Group Inc Natixis Banco Santander SA General Electric Capital Corp Banco Bilbao Vizcaya Argentaria SA Mizuho Corporate Bank Ltd Australia & New Zealand Banking Group Ltd Bear Stearns Cos Inc/The Fortis Bank SA/NV Intesa Sanpaolo SpA WestLB AG Lloyds TSB Bank PLC Wells Fargo & Co CDS Spread (October 14) 93.36 216.89 103.09 82.07 74.11 39.72 319.49 73.59 75.69 173.39 69.44 61.34 1052.14 218.68 372.35 141.87 101.65 69.33 60.74 59.02 97.79 211.56 63.62 495.41 58.49 110.53 84.18 113.45 77.68 45.43 69.26 65.84 120.08 CDS Market Implied Rating ABB+ AA A AAA BB+ A A BBB AA AA+ B BBBBB+ BBB+ AA+ AAAAABBBAABB AAA BBB+ A BBB+ A AAA A+ A+ BBB+ Implied Downgrade (No. of Notches Below Current) 3 7 3 2 2 -1 7 1 3 4 -1 -2 10 4 7 4 4 0 -2 -2 1 6 1 11 -2 3 3 n/a 0 -3 -2 2 6
1 2 3 4 5 6 7 8 9 11 12 14 15 16 17 18 19 21 22 23 25 26 28 30 31 32 33 34 35 36 37 38 39
Current S&P Rating AAAAAAAAAAAA+ AAA+ AA A+ AAAAA+ A AAAAAA A+ A A A AAAA AAA AA A+ AA n/a A AAAAA AA+
* 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
41 42 43 44 45 48 50 52 53 57 59 60 63 67 68 69 70 72 73 74 77 87 97 99
2007 Global Syndicated Loan Underwriter Ranking by Volume* Sumitomo Mitsui Banking Corp Bank of Scotland PLC National Australia Bank Ltd Standard Chartered PLC Rabobank Nederland NV Mediobanca SpA Westpac Banking Corp Caja de Ahorros y Monte de Piedad de Madrid Commonwealth Bank of Australia Nordea Bank AB DBS Bank Ltd/Singapore Kookmin Bank Dexia Credit Local Woori Bank Skandinaviska Enskilda Banken AB National City Corp Danske Bank A/S Svenska Handelsbanken AB Bank of China Ltd HSH Nordbank AG Landesbank Baden-Wurttemberg Bank of Ireland Banco Comercial Portugues SA Allied Irish Banks PLC
Current S&P Rating A+ AAAA A AAA AAAA AAAA AAAAA A+ AA+ AAAAAAA A+ A+ A A+
CDS Spread (October 14) 106.67 95.00 84.92 81.39 108.51 85.26 81.68 235.83 79.23 113.36 126.25 535.05 228.40 557.66 110.00 2141.16 130.74 78.94 258.41 292.05 93.50 106.68 61.65 88.30
CDS Market Implied Rating AAA A AA A BBBA BBB+ BBB+ BBBBBBBBBB+ BBBB+ A BBBBB+ AAAAA
Implied Downgrade (No. of Notches Below Current) 2 3 3 0 6 2 3 6 3 4 4 7 5 6 3 9 4 2 3 5 2 2 -2 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.