Institutional Investor Fear

As reported at the Financial Times, 60 percent of US and European institutional investors surveyed expect that another big financial firm will collapse within the next 6 months. Another 15 percent think it will happen in 6-12 months. Of interest is that 55 percent of those surveyed have also stopped using one or more financial institutions, other than Bear Stearns, as a counterparty on credit trades due to concerns regarding solvency. This has caused many to cut back their use of credit default swaps and other credit derivatives. US firms in particular were most worried, with 85 percent stating counterparty risk as a serious threat. It appears that many market participants are waiting for another shoe to drop, and at least one more washout and possible testing of the lows before the markets move higher.