Bank of America Defaults Risk Soars To Highest Since June 2009, Jumps By 10% Overnight

Last week, when discussing the ongoing collapse in the house of cards that Ken Lewis built and which Brian Moynihan is helping bring down, we asked readers if they "Got Bank Of America CDS?" both in general, and in the aftermath of the disclosure that "New York AG Says BAC's $8.5 Billion Settlement Is "Unfair and Misleading"." We hope the answer was yes for most, as BAC CDS just jumped to the highest since June 2009, hitting 235 bps after exploding by almost 10% overnight. And with the stock now trading with a $7 handle, we are very much concerned TARP 2 is coming soon, only this time BAC will be formally split up, for no other reason than to spin Countrywide off and most  likely see it end up with Fed funding. Wherein lies the rub: what will end up happening when BAC loses its TBTF status is that CDS referencing CFC will grind tighter to a spread pari with the US, while those referencing BAC (and/or MER) will initially tighten only to surge on the realization that BAC will have lost its government backstopped status (courtesy of the "conservatorship" of its most atrocious division).

And in other news, Goldmnan CDS was wider 17 to 183, Wells 10+ to 120 and MS 22.9 to 221.6. Risk is finally coming home to roost.