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Commentary

Lehman CDS Auction: 91.38 cents on the dollar

That’s what Bloomberg says (Lehman Credit-Swap Auction Sets Payout of 91.38 Cents on Dollar).

Sellers of credit-default protection on bankrupt Lehman Brothers Holdings Inc. will have to pay holders 91.375 cents on the dollar, setting up the biggest-ever payout in the $55 trillion market.

An auction to determine the size of the settlement on Lehman credit-default swaps set a value of 8.625 cents on the dollar for the debt, according to Creditfixings.com, a Web site run by auction administrators Creditex Group Inc. and Markit Group Ltd.

Based on the results, sellers of protection may need to make cash payments of more than $270 billion, BNP Paribas SA strategist Andrea Cicione in London said…..

No one knows exactly how much is at stake because there’s no central exchange or system for reporting trades. It’s that lack of transparency that has increased the reluctance of financial institutions to do business with each other, exacerbating the global credit crisis and prompting calls for regulation of the market.

Turns out Pimco, AIG and Citadel have written a lot of this insurance. I wonder where Ambac and MBIA are in this mess. Let’s see now – debt wise, WaMu, Lehman, Three Iceland banks, A Japanese Insurer…the CDS would have added to quite a bit. And the rest like AIG, Northern Rock, Freddie Mac and Fannie Mae were nationalised.

Now the market’s betting on GM going bankrupt. Who’s next?

  • Dr.Dan says:

    >Yes, GM is on the spot light.

    Before that , we have ot address the big fella. MORGAN STANLEY.

    Hey, hope you can do a post on Indian Bank ICICI ? their CDS has been rocketing too ?

  • Max Dama says:

    >Deepak,

    If you read anything that gives some reference point for 91.38 cents then please link it. These are the kinds of questions I’m looking to answer: Was 91.38 more/less than expected? Why? How much does 1-2 cents matter exactly? Who takes the hit? how much will it affect those who take the hit?

    Regards,
    Max

  • Anonymous says:

    >Seems net outstanding payment on CDS of Lehman is only 6 billion. But depends on how that chain will be unwound. But seems like the big Financial firms have hedged nicely. May be some hedge funds are in little trouble. Overall it is very optimistic.