Lehman default swaps may recover 9.75 pct area
By Karen Brettell
Fri Oct 10, 2008 10:45am EDT
NEW YORK, Oct 10 (Reuters) - Banks, hedge funds and other sellers of protection on Lehman Brothers are facing losses in the area of 91.25 percent of the insurance they sold, based on the initial results of an auction on Friday to determine the value of the credit default swaps.
There are also substantially more sellers than buyers of the debt in the auction, indicating that the final price of the swaps may be even lower than the initial recovery levels of 9.75 percent, according to results published by auction administrators Creditex and Markit.
The net open interest to sell the debt is $4.92 billion, they said.
The auction to settle Lehman's credit default swaps will be one of the largest settlements of contracts in the $55 trillion market, with around $400 billion in contract volumes estimated on Lehman's debt.
Lehman's bankruptcy filing last month sent its bond values plunging as the majority of the investment banking assets that had supported the debt were purchased by Barclays Bank, leaving debt holders at the abandoned holding company with little to reclaim.
Lehman's bonds were trading in the 11 cent on the dollar area on Friday, compared to around 12-to-13 cents on Thursday, according to MarketAxess.
10 October 2008
Losses on Lehman Brothers Credit Default Swaps Approaching 92 Cents on the Dollar
Dow Plunges 697 Points On the Open
The Dow Jones Industrial Average plunged almost 700 points on the market open in some of the most extreme volatilty yet seen. Prices have since rallied back to even, and a little bit of green, due no doubt to wild swings.
President Bush will be speaking this morning most likely to serve up a few more meaningless platitudes.
Intraday swings mean little if we judge by what has happened so far this week.
It will be all about the last hour of trading.
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