European financial names outperformed those in the US as counterparty risk jumped higher this week, says Credit Derivatives Research. The geographical split between major global CDS counterparties came as lending standards, ARS settlements and GSE concerns came to the fore. CDR’s Counterparty Risk Index rose 16.8bp over the week to 152bp, approaching its late July wides and around 11bp wider than the beginning of August.

The past week (beginning last Tuesday) saw a low trading range until yesterday, when CDS followed the equity market sell-off. Last week’s release by the Fed of its senior loan officer’s survey also points to further credit contraction, an ominous sign for members of the CRI and the broader market.

European banks continued to outperform US banks as pressure built to settle with ARS investors and concern rose over the need for a bailout of Fannie Mae and Freddie Mac. US brokers showed the weakest performance within the CRI, widening significantly on the week (on average +34bp, or 18.1%). All eight US names in the CRI widened (+30.5 bp, or 13%, on average) but only four out of seven European names (+0.3 bp, or 0.3%) now trade wider.