Credit default-swap protection on Household International, the consumer finance giant in Prospect Heights, Ill., widened 12 basis points Wednesday, as investors lost confidence in the firm after allegations that it overcharged borrowers in California, according to credit-default swap traders. Mid-market default swaps were quoted around 215bps Wednesday in comparison to 180bps a week earlier.
"People just aren't comfortable with the name right now. They've had some problems and it's going to take a little time for investors to regain confidence," said one trader in New York. Earlier this month, theAssociation of Community Organizations for Reform Now (ACORN) along with two Golden State borrowers filed a lawsuit against Household International claiming the firm charged the borrowers bloated fees and unreasonably high interest rates. The firm has denied the allegations. "This issue looks like its going to continue to reek havoc on Household's status for several months. Since it started the spreads have continued to slowly widen," another trader noted.
Blaine Frantz, a finance analyst forMoody's Investors Service in New York, predicted the financial outlook for Household International would begin to stabilize over the next several months as the allegations are settled. Traders said other consumer finance firms that provide credit lines, such as Providian Financial Corp. and Citigroup, have also been targets of complaints by consumer groups, and have rebounded.
Five-Year Credit Protection On Household International
Source: JPMorgan
