Bloomberg News

StanChart's Default Swaps Jump on Block’s Wager

May 13, 2013

Muddy Waters LLC Director Carson Block

Muddy Waters LLC Director Carson Block said at a May 10 conference in Las Vegas that he’d bought five-year credit-default swaps on Standard Chartered for about 85 basis points. Photographer: David Paul Morris/Bloomberg

(Corrects reference to gain in first paragraph.)

Carson Block’s bet against Standard Chartered Plc, the British lender that makes most of its profit in Asia, triggered a surge in the cost of protecting against losses on the British lender’s debt.

Block, the short-seller who runs Muddy Waters LLC, said at a May 10 conference in Las Vegas that he’d bought five-year credit-default swaps on Standard Chartered for about 85 basis points. The cost of CDS tied to the lender’s debt jumped to 103.98 basis points today, according to data compiled by Bloomberg. The shares fell 1.9 percent to 1,552.5 pence in London trading.

The investor cited the worsening quality of the London-based bank’s loans, saying a $1 billion loan to Samin Tan, chairman of Bumi Plc (BUMI), the coal company at the heart of a dispute between co-founders Nathaniel Rothschild and Indonesia’s Bakrie family, and loans to Far East Energy Corp. (FEEC:US) were “red flags.”

“They are not saying short Standard Chartered, it’s going to zero -- it’s more nuanced,” said Cormac Leech, a banking analyst at Liberum Capital Ltd. in London with a hold rating on the stock. “They’re saying CDS spreads are low and they are buying.”

Block may have considered the CDS cheap compared with larger banks, said Leech. By comparison, Goldman Sachs Group Inc.’s CDS traded at 106.82 basis points and Morgan Stanley 121.17 basis points, according to data compiled by Bloomberg.

Julie Gibson, a spokeswoman for Standard Chartered in New York, declined to comment on May 10. Doris Fan, a Hong Kong-based spokeswoman at the lender, also declined to comment.

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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