Citigroup CDS surge in doubt over debt guarantee

NEW YORK, Nov 19 (Reuters) - The cost to insure the debt of Citigroup Inc (C.N) jumped to its highest level since the U.S. government last month expanded a guarantee program to cover new bank debt, reflecting doubts over the strength of the guarantee.

Credit default swaps insuring Citigroup's debt surged to around 360 basis points on Wednesday, or $360,000 per year to insure $10 million in debt for five years, from 240 basis points on Tuesday's, according to Phoenix Partners Group.

The is the highest level since Oct. 9. On Oct. 14, the Federal Deposit Insurance Corp said it had expanded its guarantee program to bank debt. For details, see [ID:nN14534320]

Citigroup's shares also dropped more than 23 percent on Wednesday.

"What's clear here is that the Treasury programs, specifically the preferred capital injections, are not helping contain the weakness in credit," said Ricardo Kleinbaum, analyst at BNP Paribas in New York.

"Citi shouldn't be trading at these wide levels if in fact there's a backstop from Treasury, an implicit guarantee," he added.

The bank's debt protection costs had plunged to 145 basis points after the guarantee was announced on Oct. 14, according to data by Markit.

"The market's not buying that, either because they feel there may not enough money to go around or that the TARP money was not adequate," Kleinbaum said, referring the government's Troubled Asset Relief Program.

Debt protection costs on General Electric's (GE.N) finance arm also jumped on Wednesday, despite the company's statement last week it has secured the temporary backing of the FDIC for up to $139 billion of the debt. [ID:nN12476756]

Credit default swaps protecting General Electric Capital Corp jumped to 455 basis points, from 378 basis points on Tuesday, according to Markit Intraday.

Citigroup earlier on Wednesday said it agreed to buy $17.4 billion of assets remaining in a series of funds known as structured investment vehicles, essentially ending the funds that it has been supporting since December 2007. [ID:nN19330944] (Reporting by Karen Brettell; Editing by Leslie Adler)