- October 21, 2010
Weekly: 3 American banks break the top 10 amid mortgage foreclosure crisis
Amid concerns about the unearthed mortgage foreclosure pandemic facing the United States of America, it appears CDS investors loaded up on swaps referencing some of the largest American banks in the mortgage industry including Bank of America, JP Morgan Chase and Wells Fargo. All three banks ranked in the top 10 most active credit default swaps for the week ended October 15, 2010.
Investors are clearly worried about the potential fallout the big banks in the mortgage market could face with potential liabilities on more than one front led by the shortcomings of the Mortgage Electronic Registration Systems Inc. (MERS). Other US financial institutions rounded up the top 25 including Merrill Lynch (a subsidiary of Bank of America), GE Capital, Citigroup, Morgan Stanley and Goldman Sachs. As can be seen in the graphs from SeekingAlpha, CDS prices on the major banks have all risen in line with the increase in volumes.
For the second straight week, Italy topped the most active list when measured by gross notional value of trades with almost $3 billion traded across 162 contracts. If ranked by actual number of contracts traded, however, Bank of America would have come in first with almost $2. 7 billion traded across 361 contracts. CDS specifically referencing the debt of Merrill Lynch, now a subsidiary of Bank of America which also ranked in the top 25 this week, are classified separately from Bank of America as both constitute different legal entities referencing separate debt obligations.
Other names in the top 25 most active CDS include drugmaker Sanofi-Aventis and chemical company Akzo Nobel which were the only non-financial or non-sovereign names in the list this week. Germany’s Deutsche Bank and Commerzbank also showed up in the list.