Citigroup Credit Swaps Near Highest in Five Years

Credit-default swaps on bonds of Citigroup Inc., Wachovia Corp. and Morgan Stanley are trading at the highest in at least five years on speculation the nation's biggest banks may be forced to write down more subprime assets.

Contracts tied to Citigroup's debt have climbed 17 basis points to 70 basis points since Oct. 31, according to broker Phoenix Partners Group in New York. The swaps are trading at the widest levels since at least September 2002, Credit Suisse Group data show. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

Credit-default swaps tied to New York-based Citigroup more than tripled in the past three weeks, indicating the risk of default is rising. Citigroup this week said losses from the assets may rise to $11 billion, and analysts said the writedowns may increase. Contracts on Morgan Stanley and Wachovia Corp. and Merrill Lynch & Co. are at or near six-year highs on concerns that their losses will grow.

``Until there is much greater disclosure of what people have on their books, and off balance sheets as well, it just feeds into uncertainty,'' said Scott MacDonald, head of research at Aladdin Capital Management LLC in Stamford, Connecticut, which oversees $21.7 billion.

Citigroup credit default swaps trade as if the company were rated Baa3, the lowest investment-grade rating, according to the credit strategy group at Moody's Investors Service. Moody's this week lowered Citigroup's ratings to Aa2, its third-highest rating, from Aa1.
financial-stock.com