Bank and Broker Default Risk

With yet another circus act posing as a Congressional hearing going on this morning between Jamie Dimon and our esteemed members of Congress, we thought we'd provide an updated look at default risk levels for the six major US banks and brokers.  

In the first chart below, we highlight the current 2012 change in default risk (5-year CDS price) and price performance for Bank of America (BAC), Goldman Sachs (GS), Citigroup (C), Morgan Stanley (MS), JP Morgan (JPM) and Wells Fargo (WFC).  As shown, Bank of America has seen its default risk fall the most (-26%) in 2012, and it has also seen its stock price rise the most (+34.7%).  Wells Fargo's default risk has fallen the second most, and its stock price has risen the second most.

Interestingly, JP Morgan has seen its default risk rise the most at 16.23%, but its stock price is still up 2.74% year to date.  Morgan Stanley is the only stock that has seen a decline so far in 2012 (-8.72%).  But even though its stock is down, default risk for MS is only up slightly (+0.28%).

Below are price charts (in basis points) of 5-year credit default swaps for the six firms listed above going back to the start of 2010.  Morgan Stanley has the highest default risk of the bunch, followed by Goldman Sachs and then Bank of America.  Wells Fargo now has by far the lowest default risk due to JP Morgan's big increase up to 171 basis points amidst its recent turmoil.  JP Morgan's default risk is the closest to its highs from last year of any company shown.