ETF News

S&P bank cuts sends U.S. banks, brokers CDS wider

NEW YORK (Reuters) - The U.S. investment grade derivative index and credit default swaps on banks and brokers widened on Monday after credit ratings agency Standard & Poor’s announced a number of negative actions on financial companies.

Standard & Poor’s lowered its ratings on Lehman Brothers Holdings Inc, Merrill Lynch & Co and Morgan Stanley by one notch with negative outlooks, indicating another downgrade is possible within the next one to two years.

The benchmark investment grade credit index widened to around 109 basis points from around 106.5 basis points before the ratings actions, according to Markit Intraday.

Credit default swap spreads for Lehman, Merrill and Morgan Stanley widened around 15 basis points, 11 basis points and 20 basis points, respectively, according to broker Phoenix Partners Group.

Other bank and brokers also widened, by between 4 and 10 basis points, Phoenix said.

The outlook for Bank of America Corp and JPMorgan Chase & Co were also changed to negative, from stable, while Citigroup was taken off review for downgrade, and awarded a negative outlook.

Wachovia Corp’s ratings was also placed on review for a possible downgrade.

Reporting by Karen Brettell; editing by Gary Crosse