Derivs - Credit

As a decision on whether Novo Banco has triggered a government intervention credit event heads to external review after weeks of ISDA Determinations Committee wrangling, some market participants are worried that a 'no' will reduce the value of financial credit default swaps, while others warn that a European-only result could open a rift with US contracts.

Deutsche Bank is set to lose the head of its European investment grade credit trading business.

The Basel Committee’s new trading book rules don’t force banks to split into subsidiaries or to ringfence capital. But they will still revolutionise how investment banks run their trading businesses.

Abengoa provided the first credit event auction of the year on Thursday and settled at a low price, after ISDA’s DC reached a split vote decision in December on the Spanish renewable energy company triggering a failure to pay trigger for 2014 credit default swap transactions.

Hitting record wides in credit default swaps, Glencore provided a focus of concern for the derivatives market this week but the autos sector also put in an alarming performance.

It has been a big week for the International Swaps and Derivatives Association. The organisation moved to overhaul its credit determinations committee rules and broaden its board representation at the same time as undertaking a widely watched first credit event auction of the year and heading into new territory with a Novo Banco CDS external review.

If European credit investors had to name two firms damaged by the precipitous fall in commodity prices, it is likely that Glencore and Anglo American would top the poll.

Glencore launched its refinancing of a one year $8.45bn loan today (Thursday), which is hotly anticipated although the margin is set to widen as the company's credit spreads have surged to record levels.

ISDA, entering new territory, has asked members to help it put together an external review panel to resolve its deadlock over whether or not Novo Banco has triggered a credit event.

ISDA’s EMEA Determinations Committee has referred Novo Banco credit default swaps to an external review, after failing to achieve a “supermajority” with its binding vote on whether the Portuguese bank has triggered a government intervention credit event.

ISDA has released a list of participating bidders for the credit event auction on Thursday to settle Abengoa 2014 credit default swaps.

The International Swaps and Derivatives Association (ISDA) pledged to tighten up the standards that govern its Credit Derivatives Determinations Committee, a welcome move at a time when the committee’s role is evolving and it is assuming greater importance as a quasi-legal authority.