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ICICI CDS – how badly is it impacted?

So if ICICI has about 6,000 to 8,000 cr. of CDS exposure, of which a little was sold recently, are they going to be hit by Lehman’s bankruptcy and the resulting dramatic increase in CDS spreads?

Lehman’s exposure is supposed to be $800 billion in CDS alone. And the CDS on LEH debt is now expecting 40 cents on the dollar. That means CDS writers will need to pay out the remaining 60 on whatever Lehman borrowed. Even with spreads at 800 basis points, that’s not going to cover it (you need a premium of 6000 basis points to cover that).

So CDS writers are hosed if they wrote LEH debt. They’re hosed if they wrote any CDS because now no one knows who’s next. CDS writers are hosed. It’s probably the best time to write a lot of diversified CDS at obscene rates, though. Can’t get any better than this – a broad strategy writing CDS on unaffected sectors should make it. But who’s got capital?

Will ICICI get hurt? I’m sure it will – and the mark to market losses are not going to be pretty. I’m getting myself ready for a sombre October.

Disclosure: No positions. Short in SoS.

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