GSE concerns push counterparty risk higher, says CDR

Credit Derivatives Research says that counterparty risk jumped higher again this week as write-downs, asset sales and GSE concerns continued to dominate the news. All major global CDS counterparties traded wider on the week except for Wachovia. The CDR Counterparty Risk Index rose 11bp (+7%) on the week to 163bp, closing Monday near its mid-week wides. Fourteen of fifteen CRI names widened on the week and European names underperformed their US peers on a percentage basis.

Fannie Mae and Freddie Mac continued to drive the news cycle with Paulson-plan discussion sending both GSEs’ equity to new lows, says CDR. Focus shifted to the fate of common and preferred shareholders and the knock-on effect to banks left holding equity.

Among members of the CRI, Lehman Brothers faced talk of asset (management) sales, Asian investments and CEO departures. Lehman’s CDS widened out to multi-month wides then rallied hard on Friday on news of possible Chinese/Korean investment, only to sell off through the end of Monday. With the UK holiday on Monday, investor's anxiety was focused on the US financials amid extremely thin CDS markets.

On the week, fourteen of fifteen CRI names widened and European names underperformed their US peers on a percentage basis.