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Credit Default Swaps Written Off?
I saw this article in the newspaper yesterday. The headline reads:
Bond insurers want $171b of risk cover written off.
The story is that banks have purchased (from bond insurers) quite a large sum of credit default swaps (CDS) to protect themselves against collateralised debt obligations (CDOs) defaults.
Faced with downgrades and heavy financial pressures, the bond insurers are talking to banks about writting off the CDS they have sold to the banks.
Many companies with exposure to such insurance deals have already wrriten down the value of such deals.
Merrill Lynch has one of the largest exposures, with US$18.8b in asset-backed CDOs as at 28th March 2008.
Some US$1.34b was written down in the fourth quarter of last year and the first quarter of this year.
Citigroup has an exposure of US$10.5b and US$1.5b was written down in this first quarter.