As plebs wonder whether UBS is now too big and spigots wonder whether global banks can ever be smoothly liquidated, lenders have speculated whether Credit Suisse has actually failed in its forced merger with its Swiss rival.
And now it looks like we might find out. A Bloomberg news spike alert sent Alphaville plummeting towards the website of the decision committee of the International Swap and Derivatives Association and, below:
This week, someone finally asked the determination fees — a group of up to 10 representatives of the banks and five of the investment groups convened by the ISDA to decide whether credit default swaps pay off — if CS defaults.
Longtime readers of Alphavillain will remember The work of Lisa Pollack about the machinations and ruminations of DC ISDA, which operate not unlike a papal conclave that chooses a new pope and announces the decision with black or white smoke.
Now, we still don’t know if DC will decide to hear the case (that’s fair report that someone has asked him to comment), but we suspect that he will have to.
There was about $20 billion of CDS on CS debt at the time of its collapse, and as Risk reported at the time, it wasn’t.”crystalline” if the Vaporization of the AT1 bond would trigger the CDS payments. But it seems some hedge funds have grown confident that it will.
From Bloomberg Yesterday:
An illiquid corner of a swap that insures Credit Suisse Group AG’s debt came back to life this week, as some hedge funds argue it should be activated.
Funds including FourSixThree Capital and Diameter Capital Partners have bought swaps insuring Credit Suisse’s subordinated bonds on the notion that the controversial writedown of the firm’s AT1 stock could lead to a potential payout on the derivative contracts, according to people familiar with the news. question.
While five-year credit default swaps fell Thursday, they rose more than 80 basis points this week to around 360, according to CMAI prices. This is the largest increase since UBS Group AG agreed to buy Credit Suisse over a crash weekend in March. As part of this acquisition, Swiss regulators mandated the elimination of approximately $17 billion of so-called additional Level 1 notes.
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