Bear Stearns, Lehman, Merrill Trade as Junk, Derivatives Show
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On Wall Street, Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Goldman Sachs Group Inc., are as good as junk.
Bonds of American investment banks lost about $1.5 billion of their face value this month as the risk of owning the securities increased the most since at least October 2004, according to Merrill indexes. Prices of credit-default swaps based on the debt imply that their credit ratings are below investment grade, data compiled by Moody’s Investors Service show.
The highest level of defaults in 10 years on subprime mortgages and a $33 billion pileup of unsold bonds and loans for funding acquisitions are driving investors away from debt of the New York-based securities firms. Concerns about credit quality may get worse because banks promised to provide $300 billion in debt for leveraged buyouts announced this year.
“The market is being driven by fear,'” an executive who oversees $80 billion of corporate debt at Pacific Investment Management Co., Mark Kiesel, said.
Credit-default swaps tied to $10 million of bonds sold by Bear Stearns, the second-largest underwriter of mortgage bonds, were quoted as high as $145,000 yesterday, from $30,000 at the start of June, indicating growing investor concerns. The swaps traded today at $85,000, according to broker Phoenix Partners Group in New York.
