Thursday, June 19, 2008

CDS update: Citigroup sparks fresh writedown fears

Citigroup’s CFO Gary Crittenden rattled investors on Thursday when he said the investment bank could incur “substantial” second-quarter writedowns on its holdings of collateralized debt obligations linked to subprime mortgages and on leveraged loans.

While the second quarter writedowns are unlikely to be as large as the $6bn hit recorded in the first quarter, “if current trends prevail, it is fair to conclude that we will continue to have substantial additional marks on our subprime exposure this quarter,'’ Crittenden said. “Although in a sequential quarter comparison, we may continue to see the magnitude of the marks decline, as the exposures that we have have declined.'’

Citigroup may also have to write down the value of assets backed by the bond insurers, Crittenden said. In the first quarter, the investment bank recorded a cost of $1.5bn related to their exposure to the bond insurers, and may record a “similar'’ cost in Q2, he told investors.Five year CDS contracts on Citigroup’s debt hit a multi-week high of 125 basis points after the comments, made on an investor conference call. The news also hurt other banks and brokers - JP Morgan added 2bp to 90bp, while Bank of America widened by 5bp to 92bp.

But the benchmark Markit CDX index of investment grade North American companies was largely unchanged, edging just 1bp wider to 116.5bp.

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Lunch is for wimps

Lunch is for wimps
It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.