Concerns over increasing regulations for the banking industry has the cost of credit default swaps rising, which not only could affect banks like Citigroup (NYSE:C) and Goldman Sachs (NYSE:GS), but is already increasing the cost of doing business for a number of companies outside the banking industry, like Mattel (Nasdaq:MAT) and Universal Health (NYSE:UHS).
Universal Health had their credit swaps increase to 304 basis points, a rise of 46.5.
Citigroup and Goldman didn’t get hit hard yet, as Citigroup stayed the same at 175 basis points, while Goldman dropped 2 basis points to 172 basis points. That is highly unlikely to remain the same until there is clarity on the regulations which will ultimately be put in place.
How a credit swap works, is if a borrower doesn’t meet their debt obligation, it will pay the buyer the face value of the debt. That’s minus the value of the defaulted debt.
When talking basis points, that’s the equivalent of $1,00 for each $10 million of debt on an annual basis.
For the third day in a row, the Markit CDX North America Investment Grade Index Series 14 was up, which means investors are losing confidence.
Besides regulatory concerns, other market pressures like the European debt crisis and potential fallout from China’s measures to battle growing inflation are also factored into the equation.