September 23, 2011 / 2:54 PM / 6 years ago

BofA CDS costs rise after record high Thursday close

NEW YORK (Reuters) - The cost to insure U.S. bank debt rose on Friday and Bank of America’s debt protection costs rose over their record closing levels on increasing concern with bank funding costs and the prospect of declining profits if the economy tips back into recession.

Nervousness over bank credit has increased since Moody’s Investors Service on Wednesday cut its credit ratings on Bank of America (BAC.N), Citigroup (C.N) and Wells Fargo (WFC.N).

The Federal Reserve’s new program to buy longer-dated Treasuries and sell shorter-dated debt has increased fears over bank profits as the prospect of recession appears more likely and as a flatter yield curve threatens to further damage banks’ ability to generate returns.

Bank of America’s five-year CDS costs increased 17 basis points on Friday to 416 basis points, or $416,000 per year to insure $10 million in debt for five years, according to data by Markit.

The swaps closed at a record closing high of 399 basis points on Thursday, but are below intraday highs set in August, when the costs jumped to 435 basis points, Markit data show.

Other banks’ debt protection costs also rose to their highest levels since 2009.

    Citigroup’s credit default swap costs increased 13 basis points to 291 basis points, the highest since July 2009.

    Goldman Sachs (GS.N) CDS costs rose 12 basis points to 298 basis points and Morgan Stanley’s (MS.N) CDS jumped 18 basis points to 417 basis points, both the highest since March 2009.

    JPMorgan’s (JPM.N) debt protection costs also gained 6 basis points to 162 basis points, the highest since May 2009 and Wells Fargo’s CDS rose 6 basis points to 158 basis points, the highest since June 2009, Markit data show.

    Reporting by Karen Brettell; Editing by Theodore d'Afflisio

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