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Follow on Google News | ‘Cornerstone Worldwide’ – Iceland’s Banks Trigger Credit Default.“Cornerstone Worldwide”– Big payouts predicted for sellers of Icelandic bank CDS.
By: Richard Drake Sources close to Cornerstone Worldwide say that the recent auctions of Lehman Brothers debt which fetched under 9 cents on the dollar left sellers with obligations to pay £300bn and that Iceland’s banks’ debt may fetch less. CDS (credit default swaps) are insurance contracts that pay out when the issuer of a bond or loan defaults. The market for them is opaque and is not regulated and buyers can purchase contracts even though they don’t own the bond. Sellers made huge profits before the subprime crisis began but, with defaults now widespread, many sellers are having to raise cash to meet payments. Cornerstone Worldwide believe that the uncertainty surrounding the ability of sellers to meet their obligations will result in more bank and hedge fund failures in the next few months adding to systemic risk. One of the Cornerstone Worldwide sources suggested that guarantees given to the banks by the Icelandic government are not thought to carry much weight as the combined debt is 10 times the country’s GDP. End
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