The cost of insuring Goldman Sachs’ debt against default has risen to about the level of Morgan Stanley and Citigroup, two less profitable rivals,as Goldman’s regulatory woes take a toll on investors’ confidence and its standing on Wall Street.
The risk ascribed to the bank by the derivatives markets has risen sharply following US regulators’ filing of civil fraud charges against Goldman last month.
The cost of insuring $10m of Goldman’s debt using a five-year credit default swap (CDS) is $162,000 a year, according to Markit, an 80 per cent rise from the level before the charges were announced.
Goldman’s CDSs now trade at the same level as those of Morgan Stanley, which emerged from the financial crisis in worse shape, and just below CDSs on Citi, which had to be bailed out by the US government.
On April 15, the day before the Securities and Exchange Commission’s complaint against Goldman, it cost about $30,000 less annually to insure the debt of Goldman than Citi’s or Morgan Stanley’s. The CDSs of Goldman and Morgan Stanley have not traded at the same level since October 2007, Markit data show.