I-banks traded as junk on risk fears

On Wall Street, Bear Stearns, Lehman Brothers Holdings, Merrill Lynch and Goldman Sachs Group are as good as junk.

Bonds of US investment banks lost about $1.5 billion of their face value this month as the risk of owning the securities increased the most since at least October 2004, according to Merrill indexes. Prices of credit-default swaps based on the debt imply that their credit ratings are below investment grade, data compiled by Moody’s Investors Service show.

The highest level of defaults in 10 years on subprime mortgages and a $33 billion pileup of unsold bonds and loans for funding acquisitions are driving investors away from debt of the New York-based securities firms. Concerns about credit quality may get worse because banks promised to provide $300 billion in debt for leveraged buyouts announced this year. “The market is being driven by fear,” said Mark Kiesel, who oversees $80 billion of corporate debt at California-based Pacific Investment Management, manager of the world’s biggest bond fund.

Read more in The Economic Times