Greek Bondholders to Take 50% Haircut

Some holders of Greek debt have agreed to a loss of 50% of their holdings in a last-ditch effort to stop the collapse of Greece and, with it, the EU.

BRUSSELS—European leaders secured a deal to reduce Greece’s debt after laboring deep into Thursday morning to find agreement on what they had billed as a blockbuster package aimed at stemming the Continent’s debt crisis. French President Nicolas Sarkozy said after the marathon negotiating session that the leaders had reached agreement with private banks on a “voluntary” 50% reduction of Greece’s debt in the hands of private investors. He also said they had agreed to expand the firepower of the European Financial Stability Facility, the euro zone’s bailout vehicle, four- or five-fold—suggesting it could provide guarantees for €800 billion to €1.3 trillion of bonds issued by countries like Spain and Italy. The leaders agreed on a plan that would boost the capital buffers of the stragglers among the Continent’s 70 biggest banks by €106 billion ($147 billion)—though they didn’t say where the money would come from.

Note the last sentence: "The leaders agreed on a plan that would boost the capital buffers of the stragglers among the Continent’s 70 biggest banks by €106 billion ($147 billion)—though they didn’t say where the money would come from."

ftalphaville.ft.com...

reply to post by AtticusRye


And the power of the European Government strengthens again .. slowly strangling member states till the point you will suffer a Federalist system much like America's.

50% bond reduction = default. And don't think for a second private banks will foot the bill, it will be returned on corporate tax refunds at the end of the year.

I'm more interested on the derivative fall out. If I purchased a CDS on Greek bonds and had to take a 50% "haircut" I'd want to cash my CDS? And if the ECB voids CDS collections on "voluntary" "haircuts" then what happens to the terms of the CDS, is there a return of funds which will directly effect the bigger banks and insurance corps? Hrmm ..

Looks like an article written for 4th graders that doesn't actually explain anything.

Originally posted by Rockpuck
reply to post by AtticusRye

 

And the power of the European Government strengthens again .. slowly strangling member states till the point you will suffer a Federalist system much like America's.

50% bond reduction = default. And don't think for a second private banks will foot the bill, it will be returned on corporate tax refunds at the end of the year.

I'm more interested on the derivative fall out. If I purchased a CDS on Greek bonds and had to take a 50% "haircut" I'd want to cash my CDS? And if the ECB voids CDS collections on "voluntary" "haircuts" then what happens to the terms of the CDS, is there a return of funds which will directly effect the bigger banks and insurance corps? Hrmm ..

Looks like an article written for 4th graders that doesn't actually explain anything.

Sorry my posts aren't up to your very erudite standards. I'll try to be more careful in the future.

reply to post by AtticusRye


lol, it was a dig at mainstream media mate, not you..

Originally posted by Rockpuck
reply to post by AtticusRye

 

And the power of the European Government strengthens again .. slowly strangling member states till the point you will suffer a Federalist system much like America's.

50% bond reduction = default. And don't think for a second private banks will foot the bill, it will be returned on corporate tax refunds at the end of the year.

I'm more interested on the derivative fall out. If I purchased a CDS on Greek bonds and had to take a 50% "haircut" I'd want to cash my CDS? And if the ECB voids CDS collections on "voluntary" "haircuts" then what happens to the terms of the CDS, is there a return of funds which will directly effect the bigger banks and insurance corps? Hrmm ..

Well done i was going to say something like that and CDS payout based on what they term as 'Events' but someone is trying to rewrite what an event is and that someone is the USA who are holding most of the insurance for European debt.

Behind closed doors they maybe using bullyboy methods on the ECB/Germany but thats not going to work on investors so we tax payers are going to on the hook for this 50% if the USA does not pay up else these investors will sing link pigs from the roof tops.

Max Kiser said 'Hang the bankers'

reply to post by Master_007


I can only assume the ECB (or most likely the USFR, ECB and BOE) will be covering this 50%. There is no other way, it's like dropping a bolder into a duck pond, the derivative ripple effect would be catastrophic and instantaneous (2008's effects unraveled the entire World economy in a matter of hours)

When they actually form the plan we will have to go over to see what is happening behind the scenes.. I'm betting the "capital buffers" are to ensure banks don't actually lose anything to this default that would cause a CDS cash out. If I were a banker I wouldn't care if the central bank covered my losses, I'd still want the CDS payout. And the payout on everyone elses debt I purchased a CDS for.

Rockpuck

I don't have a clue where it goes from here and the stock markets at one time were connected to the economy with the value of Gold used to measure real profit and used in the transfure of payments not that long ago.

it's as if we have an unemployed man, a banker and a politician all sitting in a room skint and they come up with a plan to magic up money by bringing in a new person into the room and all agree to give the new guy money only if he gives them money first.

Trouble is they know it's all Bull# and i'm not sure if Mr China wants to join this game so the snake will continue to eat it's own tail.

Lets say we have a 50:50 chance of the Euro going down well that means we have a millions tons of fiat paper that becomes worthless over night and by the next night the fiat USD$ goes down so we now have a trillion tons of worthless paper so I keep converting fiat into silver coins when ever i can because this is the only currency that has stood the test of time on a global scale for 5000 years and i care not what the paper price of silver is because i won't be paying in fiat if things play out the way i think they might.

The insurance i have is far better than holding counter risk on CDO,CDS when the rules are being changed like we are seeing today and the real rate of inflation is in the double digits if you measure CPI using the same standards as used in 1990.

reply to post by Rockpuck


No, no, no, see the EU along with the US already had the backing of more members before the bailout was finalized, US had the most to lose if Greek falls because the "dirty" derivative mess that big to fail like JP Morgan have with the Greek banks so expect the US to take most of the percentage of the Haircut.

Now the next nations to help with the mess will come from IMF, from BRIC, yes you hear already, Russia, Brazil, China and India, more nations to get into the debt melting pot, because the debt "wealth" have to be share with as many countries as possible.

Just like the derivative mess that has never been repaid and still hovering over the nations that created the mess to begin with and still creating more derivative crap because they have never stayed away from such profitable way to create "fake wealth"

Is like a addict, can not stay away from the "fix".

“Is it possible to get some extra funding from IMF, from BRIC countries for instance,” said Finland’s Jyrki Katainen, using an acronym for Brazil, Russia, India and China.

Italy, with debt of 119 percent of gross domestic product, came under pressure to find more savings to be eligible for European help in fending off speculators.

Merkel made clear that Italy cannot count on unrestricted European support in what she called a “conversation among friends” with Italian Prime Minister Silvio Berlusconi.

“Confidence won’t result merely from a firewall,” Merkel said. “Italy has great economic strength, but Italy does also have a very high level of debt and that has to be reduced in a credible way in the years ahead.”

After a year of wrestling with the ECB over burden sharing for bondholders, Merkel was on the central bank’s side this time, sparing it from a role in financing state deficits.

www.bloomberg.com...

So, US tax payers bend over please, because we need to fund the Greek mess and take the hit, our too big to fail needs your tax dollars again.

What a joke.

Is nothing but the creation of more debt on top of more debt for generations to come so those at the very top can keep their wealth after they gamble with the wealth of entire countries population.

It's moves like that which keep this machine rolling towards the cliff. More smoke and mirrors accounting. More distraction. The train keeps on a rollin'. How many days before they say this wont be enough? A week?

Originally posted by Master_007
Rockpuck

I don't have a clue where it goes from here and the stock markets at one time were connected to the economy with the value of Gold used to measure real profit and used in the transfure of payments not that long ago.

If you know what is really, really happening with the markets and entire economies you will be heading for the mountains with enough supplies to feed your family while waiting for the next global meltdown that is coming down the road.

Just because the markets are looking peachy the reality of the global financial mess is bigger that many can phantom and is increasing by the minute.

Since the markets are now the biggest electronic hoax created in the worlds financial history, numbers can be manipulated at, will large amounts of investments and funds can be transfered by seconds and they don't need one penny of liquidity to do that, this means is no real money been exchange at all, is all electronic money like that future generations of money can be gamble at will.

Nothing but a hoax.

reply to post by marg6043


They backed the backs in the form of capital, that's one thing. It's also another thing to secure specific debt vehicles from specific countries..

It's quite another to trim 50% off the invested capital on a device that many different players all hold insurance claims to. That is what's not being addressed .. or at least, they have not explained how this default does not constitute an actual default to which would void the claim process. It would also, imo, make buying CDS against National Debt obsolete since you will never see an instance where it can be claimed? So why buy them, they are expensive? It essentially also makes buying junk status debt pointless since you cannot get a return.

reply to post by Rockpuck


Don't you worry my dear friend, we will find out how much is going to cost soon enough, somebody will have to give some for the Greek to get their cut and those banks that have the most of the Greek debt will be the ones to lose also, or us the tax payer as usual.

But as I read on the market data thread, the actual cut is going to be about half of what is showing right now at 50%.

Everything has a price, nothing is done without something to be taken away.

If you ask me this is a scam. Banks say there in debt bla bla bla and force them to cut there bonds to half price now i can see the people dumping there bonds in the coming weeks and the banks will buy them up for next to nothing. Makes me think of England in 1815 then the banks took the country over buy causing a fake crisis and the bought the country for next to nothing. That is my take on the whole greek issue.

Actually it looks like this may be a rather large crisis in the making..

So Much For Orderly Default In Greece, New Haircuts Likely To Trigger CDS

The latest discussions in Europe are signaling steeper Greek debt cuts than the 21% previously on the table, prompting analysts at Nomura to release a note Wednesday warning that a disorderly default is now the most likely scenario, and will trigger payouts on credit default swaps (CDS).

Those triggers will come from the likelihood that larger haircuts – reports Monday suggested 50 cents on the euro with bondholders getting €15 in cash and €35 in new 30-year, 6% coupon paper for every €100 in Greek debt – will be involuntary. On Greek debt alone the impact is manageable, as Nomura estimates just €50 billion in total losses, “but the impact through rising risk premia in other Eurozone bond markets could be significant,” according to strategists Jens Nordvig, Lefteris Farmakis and Dimitris Drakopoulos.

It's also being estimated that Greek pensions will take most of the hit, regardless a 50 billion euro hit to the private bank sector, if triggering a CDS payout will result in hundreds of billions in losses. And gains of course.

So what actually would pull the trigger on the derivative disaster of 2011?

Banks to Define Greek Bond Default

"It all depends on the facts, but on the straight reading of the clause, if this doesn't bind all of a reference obligation's bondholders then it's not a restructuring credit event,"

The key word being used by the ECB is "Voluntary" .. apparently in the actual CDS contracts the wording is a voluntary restructuring of the debt (haircut) will not trigger a payout.

But.. if the banks determine that they really don't have much of a choice, and decide to look after shareholders over the ECB, the trigger will occur. Because if the banks simply decide not to take the write down (and who would?) Greece defaults anyways.. Citibank alone, an American bank, is expecting as much as a 60% haircut based on the amount and types of bonds it holds. Then there is the matter that almost all of the bonds, or at least the other 50% left over, get rolled into a moderate yielding 30 year bond. So you loose 50% of the capital on debt that was paying 98% (1year notes) into a 30 year at 6%.

I'll take the CDS payout please.

For poor Greek banks it won't even matter.. a loss of 50% on it's massive holdings of Greek debt will instantly push every major bank into insolvency. So the ECB will need to bail them out with their little "capital buffer" plan. By the way, if you're Greek ... you might want to get your money out of the bank.. fast..

Total loss for all banks is supposed to be around $103 billion dollars.

There are 206 billion euros of Greek government bonds in private sector hands, so a 50 percent haircut would see banks take a 103 billion hit. Greek companies hold an estimated 80 billion euros, including 45-50 billion by its banks. Those banks hurt by the haircut could need about 30 billion euros of capital from the state to shore them up as part of a recapitalization plan alongside the Greek debt talks, reducing the net benefit to Greece to nearer 70 billion euros. The private sector agreed in July to take a mere 21 percent loss on their holdings of Greek debt, but the outlook has since deteriorated and they have been told they need to take a bigger loss to put Greece on a more sustainable path. [6]

reply to post by Rockpuck


I say, if you need debt to create "wealth" you are a moron and should be fired as an investor or economist, if you are a leader of a nation you should be stone to death or hang by the people

It seems that those that are running global economies are either scam artist or the biggest moron in the earth, because all they are doing is creating more debt on top of more debt.

You don't need to be an economist or have a degree in finances to realized that creating more debt to fix the debt is not going to work, eventually will banckrupt you.

I'm also seeing a lot of discrepincy on the size of the CDS exposure for Greek debt. Every major news outlet is saying exposure is under $4b Euro's .. which makes absolutely no sense considering CDS contracts for Greek bonds are currently 25c/euro Which, by the way the Wall Street Journal has now picked up on the CDS issue as well ..online.wsj.com...

www.ft.com...
States that a trigger would issue $5b in payouts. The total CDS market however is $79b. Which would push the largest insurers into insolvency (cough cough AIG) which would in turn trigger CDS payouts on it's own investments .. perhaps triggering a derivative ripple effect.

Many strategists dismiss worries that such a decision would hit the market, insisting that Greece will eventually default and investors who bought protection will get paid – if not in the next few weeks, probably by 2012 or 2013.

Ten banks and five investment funds, which make up the voting members of the so-called determinations committee that meets under the auspices of Isda, will decide on the fate of Greek CDS.

reply to post by Rockpuck


Who are the banks or financial institutions holding the pension funds? Rockpuck. I thought that a while back I believe in 2007 it was some kind of scandal going on about the JP Morgan, some UK firm and the Greek bonds.

reply to post by marg6043


Greek banks and the Greek treasury hold the pension accounts. The pensions, for the most part anyways are for public workers in Greece. Which amounts to a good portion of the population.