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EUR CDS Flow - CDS volumes dry up as financial markets fall
Informa Global Markets - Bondwatch Morning Insight (Europe) (August 17, 2007)

Thursday saw more reports and rumours surfacing from the US over the financial health of mortgage lenders and contacts said that they were waiting for the next bankruptcy to come out of the Financial sector as liquidity problems took hold. CDS spreads on Countrywide, Radian and ResCap in the US were all at one point quoted around 1,000bp, with ResCap trading on an upfront status. In the European single name CDS arena traders said that the market was "dead" as volumes dried up and was relatively calm compared to European equities which witnessed another large sell-off.

The main headlines on Thursday came from the Industrial sector where CIBA and Lanxess released their interim results, and speculation surrounded the state of the financing for Akzo Nobel"s takeover of ICI. 5Y CDS on CIBA was 1bp wider at 74/77 and its share fell 6.7% on Wednesday"s close after it reported a 45% fall in Q2 income from continuing operations and its profits missed forecasts. Lanxess provided more encouraging news as it beat estimates by reporting a 5% rise in Q2 EBITDA, but shares dipped 5% after it said it made a net loss due to a write down in the value of its Lustran Polymers unit. 5Y CDS on Lanxess was last seen at 59/64 around 3bp wider D/D. Elsewhere, shares in Akzo Nobel fell 7% on Wednesday"s close following speculation that the company may not receive the proceeds for the sale of Organon from Schering-Plough, though Akzo later said that this was not the case. Akzo plans to fund its GBP 8bln buy-out of ICI with the proceeds from the EUR 11bln sale of Organon.

Elsewhere, there were also reports that Henkel was having trouble financing its part of the deal, where it buys ICI"s Adhesives and Electricals businesses for GBP 2.7bln. Shares in Henkel were down 4.6% Y/Y. 5Y CDS on Akzo Nobel was at 35/37 (+3bp D/D) and both Henkel and ICI were unchanged at 30/32 respectively.

In the Consumer sector trader said that 5Y CDS on Nestle was at 10/13, unchanged on the day, after both S&P and Moody"s downgraded the food producer after it announced a CHF 25bln share buy back programme on Wednesday. Nestle had widened on Wednesday after it announced the buy back and contacts said then that it could widen further if downgraded. CS



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