LONDON Turmoil and uncertainty over some of Wall Street's best-known investment banks has left some facing rougher market conditions that price them as riskier than developing countries or banks in volatile areas of the world.
Seen for decades as the power brokers in emerging market finance, Wall St firms' sudden underdog status points to the magnitude of fear surrounding them -- and perhaps a degree of confidence in the longer-term stability of developing countries.
Shortly before it received a Federal Reserve-backed rescue package late last week, the cost of insuring the debt of U.S. bank Bear Stearns BSC.N was higher than that for banks in Kazakhstan, one trader said.
On Monday, Bear Stearns was sold for a fraction of its value last week, further undermining global markets and confidence in what were once seen as some of the world's most reliable banks.
Early on Tuesday, before it posted results, the cost of protecting debt at Lehman Brothers was 443 basis points, or $443,000 a year for five years, to protect $10 million of debt with credit default swaps.
After Lehman Brothers LEH.N announced a fall in revenue but beat fearful expectations, its credit default swaps traded at 330 basis points according to Phoenix Partners.
One analyst said the bank's position appeared "survivable" -- but protecting its debt is pricier than protecting that of Turkey or Nigeria, traders say.
"You could say Lehman is riskier than Nigeria," one trader said, asking not to be named. "But it's not a trade or a comparison people often try to make."
Turkish credit derivatives swaps were trading at 290/298 despite worries over a wide current account deficit and volatile politics. Nigeria's are relatively illiquid but usually priced in the mid-200s, a trader said.
Goldman Sachs (GS.N) credit derivative swaps tightened to 160 basis points after the bank said its first-quarter earnings fell by half after recording more than $2.5 billion of losses on loans and other assets, but with robust trading helping the bank exceed market expectations.
But liquidity in global debt markets remains poor with the world's largest banks suspecting each other of not coming entirely clean on losses in the U.S. mortgage market, and many analysts saying more bad news is to come.
"I think with Africa people feel they know what they are dealing with," said Razia Khan, head of Africa economics at Standard Chartered in London. "In contrast, everything else is a great unknown."
That was despite investors being slightly put off by the speed at which Kenya -- a perceived oasis of East African stability -- collapsed into violence after a disputed election in December.
In credit derivative swaps markets, Turkey was trading at the same level as British bank HBOS HBOS.L, while healthy Brazil with credit derivatives swaps at 191/197 basis points was roughly level with Royal Bank of Scotland (RBS.L), BB Securities said.
That was despite worries over Turkey's wide current account deficit and concerns over an attempt by the country's secular prosecutors to ban the ruling party from politics for allegedly trying to build an Islamic state.
"It gives us some kind of snapshot of relative values," said BB Securities emerging markets research head Paul Hollingworth. "The fundamentals have become secondary to liquidity and technical factors.""
"Most banks in the UK and U.S. are trading well below valuations of top emerging markets banks," he said. "The Brazilian banking system has never had it so good. It is a stark comparison."
The country suffering worst in the credit crisis is not usually seen as a byword for trouble -- Iceland, ranked top in the world according to United Nations human development indicators.
Its highly leveraged banks are laboring under a greater proportion of debt than almost any other bank and this sent the Icelandic crown to all-time lows on Tuesday morning and the credit default swaps of its leading Kaupthing Bank to 864 basis points.
(Additional reporting by Sebastian Tong; editing by Stephen Nisbet)