BizJournals Portfolio
Home >   Business Views, Opinions and Blogs >   Business Blogs >   Market Movers >  

Aca Reminds The Markets Of The Importance Of Counterparty Risk

Market Movers

by Felix Salmon
Main
Morgan Stanley: Eminently Stoppable   Morgan Stanley: Yet More Proof That Stock Moves Make No Sense

Recent Blog Posts

Links

Dec 19 2007 12:00am EDT

ACA Reminds the Markets of the Importance of Counterparty Risk

Here's the chart of ACA's share price, from when it went public at the end of 2006 at $13 per share, through to yesterday, when it was delisted at $0.31 per share. Today, S&P finally got around to slashing ACA's credit rating to CCC. And the ratings agencies wonder why they're always accused of being behind the curve.

The impending failure of ACA, by the way, is big news: already Canada's CIBC has said that it has some $3.5 billion in ACA counterparty risk, and I'm sure that's only the beginning. ACA has been writing a lot of credit derivatives, and the most important thing in any derivatives contract is that your counterparty doesn't go bust. If it does, you're buggered. For many years, counterparty risk was not priced in to CDS contracts - a mistake that many traders, I'm sure, are beginning to regret. That, and trusting what the ratings agencies were saying about the degree to which one could rely on ACA being around in future.

Comments

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.


Connect With Portfolio.com
Like Portfolio on Facebook

Come on, like us—you know you want to.

Follow Portfolio on Twitter

Follow us and if you're an innovative entrepreneur, we'll return the favor.

The Mix

Today's top stories, conversation starters, and the back nine business bites.

spotlight on

People & Ideas

Whisky To-Go-Go

Now there's a company that let's you taste your knowledge of fine blended Scotches by mixing a whisky of your own. Read More