THE COST of insuring Goldman Sachs’s debt against default is nearing that of less profitable rivals such as Morgan Stanley and Citigroup as its regulatory woes impact investors’ confidence.
The risk ascribed to the bank by the derivatives markets has increased following US regulators’ filing of civil fraud charges against Goldman last month.
The cost of insuring $10 million of Goldman’s debt using five-year credit default swaps is $155,500, according to intra-day data from Markit. That is only slightly less than the $160,000 it costs to insure the same debt for Morgan Stanley and Citi, two rivals that came out of the financial crisis in worse shape.
The $4,500 differential between the Goldman CDS and those of its rivals contrasts with a $33,000 gap on April 15th, the day before the Securities and Exchange Commission’s complaint against Goldman.
Goldman declined to comment yesterday.
The movement in Goldman’s CDS came as the bank revealed that it had been hit by lawsuits from disgruntled shareholders.
In a regulatory filing issued yesterday, Goldman said the bank, its executives and directors had been the target of seven legal actions related to its mortgage-related trading activities before the financial crisis. – (Copyright The Financial Times Limited 2010)
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