Fitch Solutions: Sovereign Uncertainties Weigh On
European Banks' CDS
Wednesday February 10, 2010 - 04:37 AM EST
Source: Business Wire News Releases
Author: Fitch Solutions
Click here to read the original story
Fitch Solutions, a division of the Fitch Group, says that growing market concerns about both the sustainability
of sovereign debt levels, particularly in Europe, and the interdependency of European banks and sovereigns,
has driven a surge in global CDS market liquidity over the past two weeks.
"The CDS market appears to have reached a consensus that the risk premium for some European financial
institutions now needs to be priced higher. This has resulted in several big moves in CDS spreads and
liquidity scores since the start of the year," said Jonathan Di Giambattista, Managing Director, Fitch
Solutions, New York.
The biggest European banking movers, according to the monthly increase in their global CDS percentile
ranking are (in descending order): Banco Bilbao Vizcaya Argentaria, Intesa Sanpaolo, UBS AG, BNP Paribas,
Banco Comercial Portugues, Credit Suisse AG, Commerzbank AG, Societe Generale, Banco Espirito Santo
and Banco Santander.
"The fact that the CDS market is now scrutinising some better known European banking names is reflective of
the degree to which the market considers government support when assessing a bank's risk of potential
default," Di Giambattista added.
More generally, North American CDS are now following the trend set in Europe two weeks previously, with
Fitch's North American CDS liquidity index also now more liquid than levels seen during the week of the
Lehman Brothers failure.
The full Fitch Solutions' Global CDS liquidity scores commentary, which covers the top five most liquid CDS
corporate names in Europe, North America and Asia, as well as the top five most liquid global sovereigns, is
available on the agency's website: www.fitchratings.com under - "Fitch Solutions' Global Liquidity Scores
Commentary Issue 27".
In general, the liquidity of a credit derivative asset increases when it is showing signs of financial stress in
combination with a significant amount of debt outstanding and/or changes in its capital structure, including
new issuance. The liquidity scores of assets have historically traded between 4 at the most liquid end, through
to 29 at the least liquid end. Entities also tend to be more liquid when there is agreement about present value
but disagreement about future value due to heightened uncertainty surrounding the entity.
Fitch Solutions, a division of the Fitch Group, focuses on the development of fixed-income products and
services, bringing to market a wide range of data, analytical tools and related services. The division is also the
distribution channel for Fitch Ratings content.
The Fitch Group also includes Fitch Ratings and Algorithmics, and is a majority-owned subsidiary of
Fimalac, S.A. For additional information, please visit 'www.fitchsolutions.com'; 'www.fitchratings.com';
'www.algorithmics.com'; and 'www.fimalac.com'.
Jonathan Di Giambattista, +1 212-908-0273 (New York)
Thomas Aubrey, +44 (0) 207 682 7226 (London)
Peter Fitzpatrick, + 44 (0) 207 417 4364 (London)
Sandro Scenga, +1 212-908-0278 (New York)
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