By ABIGAIL MOSES, Bloomberg
Investors are buying more credit- default swaps on Wall Street banks than any other companies as they seek insurance against the prospects for diminished revenue amid tighter regulations, downgrades and Europe’s debt crisis.
Contracts tied to the debt of Goldman Sachs (GS) Group Inc., JPMorgan Chase & Co., Morgan Stanley and Bank of America Corp. were the most traded among companies last week, with a combined gross notional amount of $7.45 billion, according to the latest data from the Depository Trust & Clearing Corp., which runs a central registry for the market. Swaps on New York-based Goldman Sachs were the most active, up from 13th the previous week.
Calls for tighter regulation are intensifying as JPMorgan grapples with $2 billion of losses on derivative bets and Morgan Stanley faces an inquiry by the U.S. Securities and Exchange Commission over Facebook Inc.’s initial public offering. Global investment bank revenue will fall 24 percent in the second quarter, JPMorgan (JPM) analysts wrote in a May 18 note.
“People are worried about the regulatory scrutiny these banks will face,” said Peter Tchir, founder of New York-based hedge fund TF Market Advisors. “People now fully believe regulators are in charge and will get to push things through, and there’s a real risk they overregulate.”
Swaps insuring an average $470 million of Goldman Sachs’s debt were traded each day last week, double the past month’s average of $230 million. They were the seventh most traded of 1,000 entities tracked by the DTCC, following Italy, France, Brazil, Spain, Turkey and Portugal.
Given the bank’s scandalous history of risky lending, fraud, and government manipulation, it’s hard to believe that the decision comes from a sudden sense of altruism toward the planet.