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A July 14, 2010, file photo of a Credit Suisse branch in Frankfurt, Germany. (Martin Oeser/AP)
A July 14, 2010, file photo of a Credit Suisse branch in Frankfurt, Germany. (Martin Oeser/AP)

Streetwise

Credit Suisse capital plans soothe credit markets Add to ...

Credit Suisse's plans to raise almost $9-billion in capital are easing concern in the credit default swap market about the bank's credit quality.

Credit Suisse came in for criticism from the Swiss central bank because its capital ratios weren't strong enough, so Wednesday the bank unveiled plans for a big raise using convertible bonds and other instruments.

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In the equity markets, the reaction was mixed - the stock rose but some analysts criticized the potential dilution. In credit markets, though, where dilution of equity holders matters not a bit, traders were pleased.

The result was a quick move lower in the price of insuring Credit Suisse debt against default. The price Credit default swaps on Credit Suisse debt fell 10 basis points to 178 basis points, a drop of more than 5 per cent, according to pricing service Markit.

That means it now costs $178 a year to insure $10,000 of Credit Suisse bonds against default, instead of the $188 it cost yesterday. That implies that sellers of CDS, who are providing the insurance, see significantly less risk of loss.

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