February 10, 2009 / 9:54 PM / 11 years ago

Bank CDS wider after Geithner plan, led by Citi

NEW YORK (Reuters) - Credit default swaps on U.S. banks widened on Tuesday after U.S. Treasury Secretary Timothy Geithner unveiled a plan to rescue stricken banks, with swaps on Citigroup (C.N) leading the weakness.

Geithner unveiled a revamped rescue plan to cleanse $500 billion in spoiled assets from banks’ books and support $1 trillion in new lending through an expanded Federal Reserve program.

The U.S. Senate also voted to pass an $838 billion economic rescue plan on Tuesday, setting the stage for tough negotiations over the final size and scope of spending and tax cuts aimed at reversing the deep recession.

Markets “were disappointed by the lack of disclosure regarding asset valuations,” said Ricardo Kleinbaum, analyst at BNP Paribas in New York.

“We are however optimistic that a more detailed plan will emerge over time,” he added. “It’s up for Treasury now to manage expectations to limit further declines in investor/household confidence until they implement these plans.”

Citigroup’s (C.N) swaps widened by around 27 basis points on the day to 287.5 basis points, or $287,500 per year for five years to insure $10 million in debt, said a trader.

Bank of America’s (BAC.N) swaps also jumped by 11 basis points to 176.5 basis points.

Credit default swaps protecting Morgan Stanley (MS.N) and Goldman Sachs’ (GS.N) debt also weakened around 8 basis points to 322.5 basis points and 237.5 basis points, respectively.

JPMorgan’s (JPM.N) swaps also jumped around 8 basis points to 115.5 basis points and swaps insuring Merrill Lynch’s legacy debt rose around 10 basis pints to 202.5 basis points.

Wells Fargo & Co’s (WFC.N) swaps rose around 2 basis points to 129.5 basis points.

The benchmark high grade credit derivative index also weakened on Tuesday, widening 8.5 basis points basis points to 196.5 basis points, according to Markit Intraday.

Reporting by Karen Brettell; Editing by Diane Craft

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