Credit default-swap spreads on European technology names, such as Germany's Siemens and Sweden's Ericsson, widened last week following profit warnings and job cuts from North American and European telecom equipment companies. Five-year protection on Siemens widened to 55-65 basis points from 50-60bps on Wednesday after Nortel Networks said that it would post a USD3.6 billion loss for the third quarter. Five-year protection on Ericsson gapped out to 340-360bps from 290-330bps, according to a trader. Adding to the concerns was Alcatel of France's announcement that it plans to shed more than 3,000 jobs in its cable business. "All the techs went out on the back of that news," said one trader.
Wolfgang Draack, a senior v.p. at Moody's Investors Service in Frankfurt, attributed the widening in Siemens mainly to Nortel's loss, which he said is disturbing for the outlook on Siemens. He said Nortel has a huge overcapacity in telecom equipment in the U.S. and given that it is a global company could focus more on overseas markets, including Europe. "If they decided to become more price competitive it could influence the European suppliers; they need to fill factories and if they can't do it in the U.S. they might look elsewhere," he said. Draack added that as a conglomerate Siemens is particularly sensitive to headline risk. "Siemens is broadly positioned in many industries; they can be named in all of the challenging areas," he said. Siemens is rated Aa3 by Moody's and AA by Standard & Poor's.
Five Year Credit Protection Prices On Siemens
Source: J.P. Morgan Chase Charisma@chase.com
