Now that we are a few days removed from the release of the stress test
results, let’s look at the markets view of the credit quality of the
bigger institutions today versus where they were on Feb 10th, the day
Geithner introduced the stress test. Interestingly, the CDS of each,
except Citi, are near the same level as of yesterdays close as they were
on Feb 10th. Of course much happened in between. As of yesterday’s
close, the 5 yr CDS for JPM was 123 bps vs 110 bps on Feb 10th and off
its high of 237 bps. WFC is at 141 vs 128 on Feb 10th and off its high
of 317. BAC is at 190 vs 173 on Feb 10th and off its high of 407. Citi
is at 368 vs 282 on Feb 10th and off its high of 675. MS is at 269 vs
273 on Feb 10th and off its high of 470 and GS is at 177 vs 180 on Feb
10th and off its high of 364. The question further out is if the
stressed scenarios weren’t stressed enough, will bondholders at some
point have to share in the stockholders pain.
