På fredagen fick vi så till slut till och med en officiell bekräftelse på att vi har att göra med en grekisk default och ingenting annat, då ISDA bekräftade att det är en sk ‘credit event’ när Grekland utlöste CACs som tvingade resterande innehavare av statspapper att gå med på det ‘frivilliga’ erbjudandet om att byta till nya grekiska statspapper med en nedskrivning på omkring 70% som följd.
Media försöker föbrilt tona ner betydelsen av ISDAs beslut med att bara hänvisa till netto-värdet för grekiska CDS-kontrakt om drygt 3,5 miljarder dollar och utan att ta hänsyn till de tredjepartskreditrisker som uppstår när innehavare av dessa CDS-kontrakt nu kan begära utbetalning.
Bruttovärdet av hela CDS-marknaden är drygt gigantiska 37 biljarder dollar och vi vet inte ännu hur ISDAs beslut kommer att påverka marknaden. Jim Sinclair pratar om detta i en färsk intervju med KWN som kan vara värd att ta del av.
Även Jim Rickards nämner ofta betydelsen av bruttovärdet och att nettovärdet är ganska ointressant. Vi kunde bl a läsa följande på Rickards Twitter-flöde igår:
Nedan är en utmärkt sammanfattning (via ZH) av vad som verkligen hände på fredagen och vad vi kan vänta oss härnäst:
In a nutshell—okay, a coconut shell—this seems to be where we are:
1) Greece was able to write off 100 billion euros worth of debt in exchange for a 130 billion rescue package of new debt, of which Greece itself will receive 19%, or about 25 billion, so that it can continue to operate as an ongoing concern. Somehow Greece is in a better position than before, with more debt and less sovereignty and still—by virtue of sharing a common currency—trying to compete toe-to-toe with the likes of Germany and the Netherlands, kind of like being the Yemeni National Basketball team in an Olympic bracket that includes the US, Spain and Germany. At least a “within the euro” default prevented bank runs in Portugal, Spain, Italy et al.
2) As a result of the bond haircuts, Greece has many pension plans that can no longer even pretend to be viable, at least according to the original contracted scheme, but pensionholders still working can take heart in the fact that their current wages will be cut, too.
3) CDS buyers will have to sweat bullets, jump through hoops, and be forced to endure every cliche known to man, but they might end up getting something for all their trouble, provided their counterparty is solvent and that counterparty itself is not heavily exposed to an insolvent party or a NTBTF institution, otherwise known as a Lehman Brothers. Expect the legal profession to be the prime beneficiary of this “event”, as any new CDS contract will be at least a hundred pages of boilerplate longer in the future.
4) Good luck to any less than AAA rated sovereign who wants to issue debt from now on out. That contracts can now be unilaterally abrogated, as Greece’ bonds were with the retro-CACs, bodes ill for attractive pricing from here on out. Peripherals in the EU will suffer most, as they face the added indignity of being subordinated to the ECB at any point the ECB chooses to exercise its divine right of seniority. The thing that used to be called the risk free rate no longer exists. Bill Sharpe take note.
5) One hundred billion euros worth of perceived wealth evaporated. That can not be a good thing for a Eurobanking system already capital short, as it raises leverage (quick back of the envelop calculation) by about 6% across the board. It also will not make the interbank market any more trusting, thus increasing the likelihood of perpetual LTRO. LTRO lll looks to arrive sooner than QE lll.
6) With the drawn-out Greek event and the LTRO, Europe might believe it has firewalled the system for at least three years and limited damage to Greece and Portugal (who will likely undergo a similar default by the 3rd quarter). LTRO-provided liquidity, it is hoped, will lower market rates enough in Spain and Italy so that those countries can meet sovereign bond obligations and both service existing debt and issue new debt. When the LTRO expires in 2015, “hopefully” something called organic growth will have taken over in countries imposing severe austerity measures on their public sectors, so that debt servicing becomes easier. Organic growth obviously is something that comes in a can, a can which has been kicked out to 2015.
7) As Europe now speaks increasingly of greater EU financial integration, Sarkozy’s poll numbers will be the victim and a less EU friendly individual will likely win the upcoming election. Since France and Germany fortunately have a long and storied history of being the best of friends, and no one in either country would ever pander to nationalist sentiments, this shouldn’t present a problem.
8) Given how much angst was caused by the drawn out Greek affair, the Spanish leader knows he has enormous leverage with EU leadership and he can continue to do what he has been doing with regard to ignoring the deficit targets demanded/suggested by the EU. The EU might well bark at him, but they cannot afford to bite at this time. Muchos gracias, Greece.