Citigroup, Merrill Default Swaps Rally; Goldman Eases Concerns

The risk of financial companies defaulting on their debt fell after Goldman Sachs Group Inc. and Bank of America Corp. stoked optimism that the nation's largest banks may have seen the worst of credit market losses.

Contracts on Citigroup Inc. declined 8 basis points to 74 basis points, according to CMA Datavision in London. Credit- default swaps tied to Merrill Lynch & Co. fell 10 basis points to about 125 basis points. Goldman Sachs tumbled 15 basis points to 80.5 basis points, the biggest drop in about three years.

Goldman Sachs Chief Executive Officer Lloyd Blankfein told a New York conference yesterday that the largest U.S. securities firm by market value doesn't plan ``significant'' writedowns from subprime-mortgage securities. Bank of America said its losses will be restricted to $3 billion next quarter and UBS AG analyst Glenn Schorr said the potential for losses at Lehman Brothers Holdings Inc. is ``negligible.''

``After several weeks of selloffs, any marginal good news helps the market,'' said George Bory, global head of credit strategy in Stamford, Connecticut, at UBS, Europe's biggest bank by assets.

Citigroup and Merrill Lynch, both based in New York, sparked a selloff of financial shares and debt this month when the firms accepted the resignation of their CEOs and increased writedowns of collateralized debt obligations and other debt backed by mortgages to people with poor credit.

Credit-default swaps tied to the bonds of the world's biggest banks and securities firms soared to the highest last week. Citigroup said it may take an additional $11 billion of writedowns on top of $5.9 billion and Merrill, the world's third-biggest securities firm, increased its losses to $8.4 billion.
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