NEW YORK, Sept 23 (Reuters) - The cost to insure the debt of Washington Mutual (WM.N) jumped significantly on Tuesday and credit spreads on all financial companies weakened on uncertainty over government plans to bail out the sector.
Credit default swaps on WaMu’s debt surged to an upfront cost of 54.5 percent the sum insured, or $5.45 million paid upfront to insure $10 million in debt for five years, from 40 percent on Monday evening, according to Markit Intraday. The swaps also require annual payments of 5 percent.
WaMu’s credit default swaps have been volatile on concerns about the thrift’s mortgage exposures.
Credit default swaps trade on an upfront basis when a company is considered distressed and sellers of protection want to be paid more at the outset of the contract due to higher perceived risk of the firm defaulting on its debt.
Moody’s Investors Service on Monday said it may cut WaMu’s credit ratings deeper into junk from “Ba2,” two steps below investment grade.
The Financial Times reported late on Monday that regulators are growing impatient for the thrift to be acquired by a stronger firm and may push for it to be split between a few banks. (Reporting by Karen Brettell; Editing by Chizu Nomiyama)