Oops! Greece Gets Its Dates Wrong

The PSI participation in foreign law Greek bonds was a meagre 69%. Greece has now extended the deadline for participation to April 4th.

Unfortunately, before then, on April 2nd there is a payment due on some bonds relating to Greek railways.

Was not the whole point of this exercise was for the swap to have been finalised so that bailout conditions were met before bills were due?

Oops!

Read More

Moody's Downgrades Greece

Unsurprisingly Greece has been downgraded by another ratings agency. Moody's has cut Greece's sovereign debt rating to the lowest possible level (from C to Ca).

The Ca rating means that the bonds are classed as being in "default".

Moody's are of the view that there is both a "distressed exchange" and "outright default".

Meanwhile, it is evident that (despite what some may claim and hope), the markets do not believe that the bailout is going to work, Zero Hedge reports the following:

"Nevertheless numerous hedge funds have been accumulating a range of Greek bonds that are governed by foreign law in the hopes of of making a legal challenge."

The media will soon begin to leak details of the actual participation rate, this is very likely to be below the percentage in the hype being spewed forth by the politicians.

Read More

The Official Greek PSI Website

The first press release from the Hellenic Republic Ministry of Finance, as per the official and newly created PSI website:


HELLENIC REPUBLIC MINISTRY OF FINANCE
Press Release 
For Immediate Release 
24 February, 2012

Athens, Greece. The Ministerial Council of the Hellenic Republic today approved the terms of invitations to be made to private sector holders outside the United States of bonds issued or guaranteed by the Republic and selected to participate in the exchange offers and/or consent solicitations to be made by the Republic in furtherance of the 26 October 2011 Euro Summit Statement and the 21 February 2012 Eurogroup Statement, referred to as the Private Sector Involvement. The bonds invited to participate in PSI (listed by series in Annex I) have an aggregate outstanding face amount of approximately Euro 206 billion.

The exchange offers and/or consent solicitations will permit private sector holders to exchange bonds selected to participate in PSI for (i) new bonds to be issued by the Republic on the PSI settlement date having a face amount equal to 31.5% of the face amount of their exchanged bonds, (ii) European Financial Stability Facility notes with a maturity date of two years or less from the PSI settlement date and having a face amount equal to 15% of the face amount of their exchanged bonds, and (iii) detachable GDP-linked securities issued by the Republic having a notional amount equal to the face amount of each holder’s new bonds. On the PSI settlement date, the Republic will also deliver short-term EFSF notes in discharge of all unpaid interest accrued up to 24 February 2012 on exchanged bonds. The terms of the new bonds, GDP-linked securities and EFSF notes are summarized in Annex II.

The consent solicitation relating to Greek-law governed bonds issued by the Republic prior to 31 December, 2011 (having an aggregate outstanding amount of approximately Euro 177 billion) will seek the consent of the affected holders to the amendment of these bonds in reliance on Law 4050/2012 (the Greek Bondholder Act) enacted by the Greek Parliament on 23 February 2012. The proposed amendments provide for the redemption of the affected bonds in exchange for the PSI consideration described above. Under the collective action procedures

introduced by the Greek Bondholder Act, the proposed amendments will become binding on the holders of all the Republic’s Greek-law governed bonds issued prior to 31 December 2011 identified in the act of the Ministerial Council approving the PSI invitations, if at least two thirds by face amount of a quorum of these bonds, voting collectively without distinction by series, approve the proposed amendments. One half by face amount of all the Republic’s bonds subject to the collective action procedures will constitute a quorum for these purposes. The Republic will also separately solicit consents in favour of equivalent amendments from the holders of its foreign-law governed bonds and its foreign-law guaranteed bonds in accordance with the terms of those bonds.

To satisfy regulatory requirements applicable in a number of jurisdictions, the Republic will invite the holders of certain series of bonds to participate in the Republic’s exchange offer but not its consent solicitation, and holders of the Republic’s Swiss-law governed bonds may not exchange their bonds but will be solicited to consent to their amendment. Holders will receive substantially the same consideration irrespective of whether they participate in the exchange offer and/or a consent solicitation. The Republic also intends to invite holders in the United States of America to participate in a concurrent exchange offer and consent solicitation on substantially the same terms. The Republic will not, however, deliver any EFSF notes to holders in the United States of America, who will instead be paid the cash proceeds realized from the sale of the EFSF notes they would otherwise have received.

The full terms of each invitation will be made available in electronic form only through www.greekbonds.gr. In order to participate in an invitation, holders will need to comply with the procedures and offer and distribution restrictions described in the Republic’s related invitation memorandum available online at www.greekbonds.gr.

The invitations will be subject to certain conditions, including a financing condition and a minimum participation condition. Under the financing condition, the Republic will not proceed with any of the transactions contemplated in the invitations unless it meets all of the conditions under the financing agreements entered into with the EFSF for the Republic to be entitled to receive the EFSF notes, which include the approval by EWG, at its absolute discretion, of such disbursements. In addition, unless bonds representing at least 90% of the aggregate face amount of all bonds selected to participate in PSI are validly tendered for exchange, the Republic will not be required to settle any of the exchanges. However, if the Republic receives consents to the proposed amendments that would result in at least 90% of the aggregate face amount of all bonds selected to participate in PSI (including bonds tendered for exchange) being exchanged on the terms proposed by the Republic, the Republic intends, subject to all other conditions being satisfied and in consultation with its official sector creditors, to declare the proposed amendments effective and to complete the exchange of all bonds selected to participate in PSI that would be bound by the proposed amendments.

If at least 75% but less than 90% of the aggregate face amount of all bonds selected to participate in PSI are validly tendered for exchange, the Republic, in consultation with its official sector creditors, may proceed to exchange the tendered bonds without putting any of the proposed amendments into effect. However, if less than 75% of the aggregate face amount of the bonds selected to participate in PSI are validly tendered for exchange, and the Republic does not receive consents that would enable it to complete the proposed exchange with respect to bonds selected to participate in PSI representing at least 75% of the aggregate face amount of all bonds selected to participate in PSI, the Republic will not proceed with any of the transactions described above.

Deutsche Bank AG, London Branch, and HSBC Bank plc have been appointed to act as Closing Agents for the invitations made outside the United States. Bondholder Communications Group LLC and Hellenic Exchanges, S.A. have been appointed to act as the joint Information, Exchange and Tabulation Agent.

Read More

On Again Off Again - The Greek Farce Continues

As another week of rumour and counter rumour about an "imminent" deal on the Greek haircut comes to a close, the usual rumourmongers from the EU and Greece are proactively spinning that the "deal" is almost done.

However, a much rumoured meeting of EU finance ministers (in which the deal is to be discussed) appears to be in "on again/off again" mode.

The EU recognises that the meeting (allegedly next Monday) cannot take place until the "deal" is signed off. Therefore, displaying a lack of confidence in the hype over an "imminent" signing, the EU has said it expects finance ministers to meet when there is clarity on the Greek PSI debt swap (it will not confirm a date for the meeting).

This time next week we will still be awaiting the "imminent" signing of the "deal"!

Read More

The Fluid Greek "Deadline"

The Greek Prime Minister, Lucas Papademos, has said:

"Significant progress made in talks about PSI...We are seeking to conclude negotiations with the troika by the end of the week".

This of course is the same fluid "deadline" that moves ever further forward into the distance.

Read More

The Troika's Wishlist

Reuters reports that the EU, IMF and ECB (aka troika) have drawn up a report which includes a list of measures they want to see enacted by Athens, before the Euro130BN bailout fund is released (always assuming of course the bondholders agree to their haircut).

This is all very nice. 

However, given that the bondholders have yet to agree terms of their haircut and the Greeks are in denial about the wishlist actually being binding or relevant (government spokesman Pantelis Kapsis said the government would try to negotiate some of the points), the chances of Greece avoiding a disorderly default are the same as that of a cat in hell.

Read More

Greece Applies Pressure

Greece, very aware that its likely departure from the Euro would cause political havoc in Europe, has issued a thinly veiled threat to its creditors that if an agreement is not reached with them wrt the second Euro130BN bailout, then it will leave the Euro.

A Greek spokesman Pantelis Kapsis told Skai TV:

"The bailout agreement needs to be signed otherwise we will be out of the markets, out of the euro.

The situation will be much worse."

Details of the rescue plan need to be agreed and finalised before a major bond redemption in March this year.

To my view both Europe and Greece would be better off if Greece did leave the Euro.

Read More

The Guilty Idiots

Angela Merkel has won the vote in the Bundestag to expand the EFSF. The expansion to the fund is too little and too late.

The Euro is collapsing under its own inherent weaknesses and contradictions.

Votes in the Bundestag will do nothing to stop that.

BTW, The Germans call the current iron eagle in Bundestag (the current version adopted is 1949) the PLEITEGEIER, ie the "CARRION BIRD OF DEFAULT"

Read More

48 Hours To Save The Euro

The Telegraph reports that Chancellor Angela Merkel seemed in little hurry on Tuesday to resolve the Euro crisis.

There will be no "spectacular step" at the Justus Lipsius building on Thursday; just a "controlled process of gradual steps and measures", she said with unflappable calm.

All very well, if the markets were operating at "EU political speed". However, unlike the politicians, the markets have realised some time ago that there are only two solutions for the crisis:

1 The collapse of the Euro, or

2 The complete fiscal and political integration of the EU.

Merkel's statement will confirm to the markets that in fact there is no way that option 2 is possible. Hence, it is but a matter of time before the Euro collapses.

Read More

Minuscule Chance Of Euro Collpase

Stephen Nickell, a member of the Office for Budget Responsibility (OBR), told the Treasury Select Committee that there was a minuscule (1.7%) chance of the Euro collapsing.

Ireland, despite initial fears of it not being able to pass its budget package, looks like it has gained enough support for it to be able to approve its budget this afternoon; thus offering much needed respite to the beleaguered Euro.

Time will tell as to whether the 1.7% (such a precise figure!) odds quoted by Mr Nickell reflect reality.

History is littered with the corpses of previous attempts at currency unions.

Read More

Brown's Clunking Fist Caused The Financial Meltdown

It would appear, from extracts of memoirs published about the dying days of Lehman Brothers, that aside from the US Administration pulling the plug on Lehman (the collapse of which then caused the meltdown of the global financial system) our dithering Prime Minister had a hand in it too.

Seemingly Barclays was on the cusp of sealing the deal, subject to approval from the UK government.

At the eleventh hour, out of the blue, Darling (having spoken to Brown) refused to give permission, despite being warned by the US that Lehman collapsing would cause global financial meltdown.

Is it not ironic that Brown, who claims to have saved the UK from even worse economic turmoil, is in fact more than partially responsible for causing the crisis in the first place?

Read More

Lost

It seems that Alastair Darling, when he makes his budget speech on Wednesday, will announce that £60BN of taxpayers' money spent on bailing out the banks will never be repaid.

It is also predicted that Darling will cut public expenditure by £15BN.

If only Gordon Brown had put something away for a rainy day when times were good!

However, on the upside, the CBI said that the worst of the UK recession is over but warns that there will be no recovery until this time next year.

Read More

Start Lending!

John McFall, the chairman of the Treasury select committee issued a blunt warning to banks last night.

"The banks appear reluctant to launch their recapitalisation lifeboat and start lending again to households and businesses.

They are navel gazing and looking warily at each other instead of concentrating on their customers, many of whom are still in peril on a sea of uncertainty."

To add to the pressure on the banks, heads of the main high street banks have been summoned to the Treasury today for a final warning.

The cosy world of banking has been turned upside down, yet the bankers don't seem to have grasped that yet.

Read More

Timid

It seems that the Bank of England's recent 1.5% cut in rates was not as bold as some commentators had first believed.

According to minutes of the Monetary Policy Committee (MPC), members had wanted to cut rates by 2%. However, they were afraid that such a cut would be too much of a shock for the financial markets.

We are facing the worst recession in decades, under these circumstances assertive bold leadership is required; yet the Bank continues to dither.

The upside to the dithering is that clearly another rate cut is on the way.

Read More

The Dead Cat Bounce II

Lats week I wrote about the rebound in shares, in response to the US bailout of the financial system, being a "dead cat bounce".

It would seem that I was right.

Shares in London and Asia have fallen sharply, as doubts grow about whether the $700BN bailout will work. At the time of writing:

-The FTSE is down 2%
-The CAC down over 1%
-The MSCI index of Asia-Pacific shares (excluding Japan) down 2%
-The Dow down over 3%

The package proposed by Henry Paulson, US Treasury Secretary, is expected to face opposition from members of Congress about how to pay for the plan.

Additionally, other American industries outside Wall Street have begun to ask for similar assistance; eg bans on short-selling have been requested by car and real estate companies.

Senator Richard Shelby, the leading Republican on the Senate Committee on Banking, Housing and Urban Affairs, said in a statement yesterday that the proposal was "neither workable nor comprehensive".

"I am concerned that the Treasury's proposal is neither workable nor comprehensive, despite its enormous price tag. In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted, and may actually cause the Government to revert to an inadequate strategy of ad hoc bailouts.

Given that markets have recently taken confidence in the prospect of government involvement, I believe Congress must immediately undertake a comprehensive, public examination of the problem and alternative solutions rather than swiftly pass the current plan with minimal changes or discussion. We owe the American taxpayer no less."

That is all very well, but the issue is one of confidence. A lengthy review will sap the confidence and destroy the financial system before any "cure" is discovered.

I noted last week:

"The actions taken may well soften the blow from the fallout of the sub prime crisis. However, the market cannot be bucked. There is a massive repricing of risk being undertaken which will negatively impact the share prices of financial institutions and, by definition, their willingness and ability to take on risk.

No matter what governments do this repricing will happen and the effects will be felt by everyone, from the CEOs of the leading banks to the ordinary man in the street seeking credit to buy a car or home.

The market will not be bucked. The surge in share prices is in effect a dead cat bounce, not a long term rally."

The bailout will not stop shares falling, but it will stop the world wide financial system from collapsing by giving it a much needed boost of confidence.

Testing times require bold measures.

Now is not the time for dithering and navel gazing.

Read More

Housing Market Grinds To A Halt

The Royal Institution of Chartered Surveyors (RICS) report that the housing market ground to a virtual standstill last month, as a result of the lack of mortgages.

RICS report that the average number of property sales handled by surveyors, over the past three months, fell to 14.4.

Needless to say the government's botched leak about the possibility of lifting stamp duty for a few months has added to the problems, as people have now delayed making a purchase until the situation is clarified.

Unfortunately the government will not be clarifying its position anytime soon, as the Treasury blames Number 10 for the leak and Number 10 claims it was not responsible.

Brown's government is collapsing around his ears, and is bringing the economy down with it.

Read More

Eurozone Stagnates

The Times reports that the Eurozone is facing the twin nightmares of inflation and stagnant growth, meanwhile the European Central Bank (ECB) signalled earlier this month that Eurozone rates would have to rise further.

How has this situation come about?

1 The world economy is suffering from rising commodity, food and oil prices.

2 The ECB is using a "one size fits" all policy for interest rates, despite the fact that there are clear fault lines between the economies of the North of Europe and South of Europe.

3 The dollar has fallen leaving speculators to pile into the Euro, thus depressing European exports.

The current problems facing the ECB/EU show very clearly why the EU, in its current form with a single currency, will not work.

As the ECB battles to stave off inflationary pressures by raising rates, Southern countries such as Greece, Spain and Italy are in economic freefall. The political fallout from the collapsing economies of the South will destroy the EU in its current form.

Britain has been very wise/lucky not have signed up for the Euro as the currency will collapse.

Read More

HBOS Give Brown The Two Fingered Salute

Following on form yesterday's breakfast meeting between Gordon Brown and senior bankers, a follow up to Darling's public pleadings for banks to reduce the costs of borrowings, HBOS will give its response tomorrow.

It is reported that Halifax Bank of Scotland (HBOS) will increase its two-year fixed and tracker mortgages by as much as 0.5% from tomorrow.

It seems that Brown and Darling are being ignored.

As I said yesterday Brown and Darling are "nothing more than hopeless and helpless observers wringing their hands as the British economy and banking system collapses around them."

The Bank of England and the government need to appreciate that, no matter what thier concerns over "moral hazard" are, issues of governance can be dealt with later. Their prime mission must be to prevent the economy from collapsing.

If your neighbour's house is on fire, even if he started it himself, you do not sit idly by watching and waiting for your house to burn down as well; you help him put it out.

Read More

The Credit Crunch

Despite media and political hysteria over the ongoing "credit crunch", it would seem that well run and well regarded companies are still able to raise money.

The Guardian reports that Rio Tinto has raised a record £20BN to fund its acquisition of Alcan, despite the turmoil in the credit market.

It would seem that the market is reassessing the true worth of companies and financial products, rather than collapsing in the panic that the media might have people believe.

There will be a bloody outcome for those companies assessed to be bad risks, and for those that rashly took on high risk investments. As always it is the fundamentals that are the key to a successful investment, not market hype.

Read More

Soft Prices

It seems that the UK house market, to use an estate agent's phrase, may be "softening". Asking prices for properties in London have fallen for the first time in a year.

That at least is the view of Rightmove, which said that London asking prices fell by 0.1% in the past month.

Over England and Wales, as a whole, prices rose 0.6% in August, compared with 0.3 per cent in July. The took the annual rate is now 12.8% compared with 10.3% in the previous month.

Miles Shipside, commercial director of Rightmove, was quote in The Times:

"This fall is the first we have seen for some time and is an early warning signal that even the buoyant London economy is susceptible to market forces.

The capital and international status of London means that prices are likely to be more resilient in the longer term, unless the current turmoil in the financial market undermines employment and wealth creation."

He would of course try to talk the market up, wouldn't he?

Read More