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Lehman CDS Auction: Initial Results

Recovery: 9.75
Net Open Interest: $4.92 billion to sell
Source Creditex/Markit
bad…

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Posted by jck at 10:30 am ET on October 10th, 2008 |

8 Responses to “ Lehman CDS Auction: Initial Results ”

  • # 1 SS Says:
    October 10th, 2008 at 10:36 am

    That’s peanuts. A dramatic exaggeration of exposure. I’d view that as a vote to let the market work things out.

  • # 2 jck Says:
    October 10th, 2008 at 10:41 am

    With CDSs, there is always dramatic exaggeration, I have noticed…
    nevertheless the imbalance is big and the final price is going to be ugly…

  • # 3 SS Says:
    October 10th, 2008 at 10:46 am

    JCK,

    Am I missing something here? The amount tendered was $5B. I thought that was the total amount of exposure — i.e. contracts written. Is that the total or is it just an indicator price and the there is some unknown amount of CDS still out there to be tendered?

  • # 4 jck Says:
    October 10th, 2008 at 11:00 am

    This is the NET exposure that will need to be settled at the next auction, so the price should go lower. The total exposure is not really relevant for dealers because they have matched or near matched book so they are not exposed to recovery risk.
    The link below is quite a good explainer of how things work:
    http://www.creditfixings.com/information/affiliations/fixings/auctions/current/credit_event_auction_primer.pdf

  • # 5 Lehman brothers ..el miedooooooooooo - Page 2 - Burbuja Económica Says:
    October 10th, 2008 at 11:25 am

    [...] Cárpatos. Peor de lo esperado, pero no dermasiado, y no ha habido ningún susto gordo. Más información en el siguiente enlace: Alea | Lehman CDS Auction: Initial Results [...]

  • # 6 SS Says:
    October 10th, 2008 at 11:53 am

    JCK,

    Thanks.

    That’s what I thought initially. So, my initial impression stands. The settlement itself is no big deal. How much institutions lost hedging to get there — and if there is still counterparty risk when the time comes to pay up — is another matter of course.

  • # 7 jck Says:
    October 10th, 2008 at 12:33 pm

    No, it’s no big deal, “only” counterparty risk still exists, the credit event itself was a few weeks ago and mark to market ensures that it is already accounted for in the books.

  • # 8 Diddy Says:
    October 10th, 2008 at 1:37 pm

    MS is finished. Weekend nationalization. Ask your London friends if they have credit line over there. Zilch.

    It’s over. No bitch-ass ness.

    Diddy

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