Change Is the Status Quo: Likely Outcomes for Greece [View article]
a CDS Credit Event has to follow the documentation and is independent of what the rating agencies do, though Restructuring is a complicated Credit Event (unlike Failure to Pay) so the committee might decide a voluntary one is a Credit Event, but I would expect someone to challenge the determination if it doesn't follow the docs - I included the bulk of the Restructuring Credit Event criteria in the link I posted. I believe there was an example of a U.S. phone directory company (or something) that did a distressed exchange. Got classified as a default by the rating agencies. Old bonds got downgraded to D, then exchanged to new bonds which matched their old ratings. Since it was voluntary, there was no Credit Event. I will try and get details on what name it was, but that is my recollection.
A lot depends when banks sold. Even the 10 year bond, currently trading at 54, got above 90 last May after the first bailout, and back above 80 in October after EFSF and QE2. Shorter dated bonds had even more opportunities to be sold at relatively small losses. So if they timed sales reasonably well, and were holding back income (the bonds are current on interest) and maybe some reserve release, a big portion could be cleaned up. It does appear some were sold to ECB? Though I suspect at this stage as many hedge funds are long Greece debt as are short it, though no position is probably what the majority have.
On Lehman, the big losses were straight outright bond holders. Too many institutions aren't set up to handle losses on assets that they deemed as safe when they were purchased. Money market funds owned a lot of Lehman bonds. That was a far bigger problem than anything to do with CDS in my opinion.
National Bank of Greece Appears Undervalued [View article]
I read the article because I thought it could be interesting, but for a bank that cannot tap the public debt markets, relies heavily on ECB for its funding, the article seemed superficial at best. Looking at the P/E seems less meaningful to me than if someone had dissected the balance sheet and done a better 'worst' case analysis. I don't have a position, but certainly this didn't convince me to start one. And in my opinion, what would profitability be down, so far Greece has remained current on its obligations and NBG strikes me as a non mark to market sort of bank.
If you have more or better analysis of why it is Cheap I'd love to see it, but this article seemed lacking in depth for, what to me at least, is a distressed situation.
Change Is the Status Quo: Likely Outcomes for Greece [View article]
I have looked at the offering circulars of a couple Greek bonds, no such complicated language on sovereing debt. Basically it was failure to pay on the bonds or a government decree that stops the government from performing. The bonds I looked at had no Cross Default provisions either.
Basically, unlike a corporate bond, the docs for sovereign debt are pretty loose because i) no one really expected them to default, and ii) enforcing your rights on a sovereign entity (if you had any) in that sovereign nation is easier said than done
Change Is the Status Quo: Likely Outcomes for Greece [View article]
good article.
if banks or other investors roll into new bonds or extend the maturities, so long as those new securities, or amended existing ones remain current on interest, banks can hold them at par. The rating agencies can classify them as defaulted, but so long as Greece is making current payments on those bonds, banks can hold at par, so it is only the ECB that has to change its rule. The rating agencies would likely rate the new or amended bonds at the current Greek ratings. They would publish a note saying that "Greece Defaulted", it would go in their historical studies as a default, but then with the bonds still being paid they would adjust the current rating back to where it was before the "default".
A Credit Event is trickier, but my interpretation is that voluntary agreement (even if coerced) would not trigger a credit event - here is the language and you can make your own determination -
Finally, Germany in particular has been making some noises that banks are in position to handle a Greek default. That actually makes sense to me. The banks have had over a year to get their positions to a manageable level so only the ultra dumb ones should still be overexposed. Secondly, the market is clearly aware of who holds Greek debt and is haircutting valuations on those banks significantly based on where Greek bonds are trading, so if there is a default, and post default the Greek bonds trade near their current levels, will the stocks of those banks react much worse? I think a lot is already built into valuations. Money market funds - not so much.
Everyone also seems to claim that saving Greece will stop the contagion? Huh? Saving Greece doesn't help, Ireland or Portugal or Spain make their payments. The contagion will spread to those no matter what happens in Greece and they will have to be bailed out in the similar way with all the similar arguments, or by then maybe governments will finally let the chips fall and land where they may and try and hold the system together and rebuild once the bad debt is finally flushed.
National Bank of Greece Appears Undervalued [View article]
if German banks are eventually going to have to take a haircut, there is no way they are going to let Greek banks avoid getting nationalized. I suspect they are largely surviving solely on funding via the ECB and are a part of that 200 billion of collateralized lending on the ECB's books to Greece.
Greek Debt Is a Liability, Not an Asset [View article]
I have gone through the BIS report. Nowhere does it state that "indirect exposures" are "CDS" i have looked for a definition of Indirect Exposure in that report
the conclusion that indirect exposures or 'other exposures' are banks selling credit protection cannot be proved from what I can see. There is definitely no line item in the BIS report and without the original author explaining his calculations in detail - which he has failed to do on his website when I last checked this afternoon it is impossible to see how he came to that conclusion.
Other exposures, could be any number of things. Repo agreements. Custodial agreements. Interest rate and FX swaps. The list goes on and there is NOTHING in the BIS report that states the other exposures or indirect exposures are CDS. On the other hand, DTCC data shows a total NET exposure to Greek sovereign CDS of 5 billion. So you have to take the alleged calculations of one person, which cannot be readily confirmed from my reading of the BIS report, or take a source where basically 100% of CDS trades pass through? hmmm....
One of the tables in section 9 of the BIS report, where the original author seems to pull some calculations explicity states the notionals do NOT include risk mitigants. Risk mitigants would be meaningful and any number that doesn't include risk mitigants would vastly overstate potential losses.
in one area, again, not sure the table that was used, "other potential exposures" is broken down into 3 subsets - derivatives of all kind were the smallest, then credit commitments, and then above all was guarantees extended. So if that is where the data is coming from, CDS, which would not even account for all derivative exposure is a tiny number and in line with DTCC data.
Maybe the original auther is correct, but spend 10 minutes looking through the BIS link where the original author supposedly figured out the CDS exposure of U.S. banks to Greece. i think you will be left with more questions then answers and so far those answers haven't been given.
Then spend 2 minutes on the DTCC report and find someone who provides a good reason why that data is incorrect? You will have a hard time doing that.
I'm bearish and happy to jump on a good bear bandwagon, but this calculation derived from the BIS study doesn't match with data that is reliable and the author has failed to provide details of how he came to his conclusion. The BIS report definitely doesn't provide the number outright so you are relying on someone's interpretation of that data and I believe it is off by orders of magnitude. US banks probably have less than 2 billion of open CDS exposure to Greece, not the 120 billion.
U.S. banks may have 99 problems, but 120 billion of naked CDS exposure isn't one of them.
The Countdown to Sovereign Debt Write-Offs Has Started [View article]
Good point. I don't know enough about how the U.S. finances these projects, but it seems ironic (to say the least) that we have hit a debt ceiling, are creating iou's to give iou's to some public pension funds to avoid breaching the limit, but we will pay our share of the IMF bailout to Greece. Seems weird, but I'm sure there are loopholes in the system designed exactly to do this.
Next Global Credit Crisis: U.S. Banks and Greek Debt Will Be the Toxic Trigger [View article]
it is only the regulators and lazy investors who give the rating agencies any power in the first place. if the regulators didn't use the rating agencies for reg cap, they would hardly exist
Greek Debt Is a Liability, Not an Asset [View article]
where do you get the $200 billion number and the conclusion that it is mostly in the form of credit insurance? if it is from that report where someone tried to pull information from the BIS reports, then I believe you are basing your conclusions on erroneous data.
I'm bearish the market, I think Greece should default/restructure. My opinions are in some articles and in some instablogs. I have sent more to my distribution over the past few months, but I think the original report that allegedly calculated so much CDS written by U.S. banks is incorrect.
If you go to the original site, the auther has not really done much to disspel the arguments. DTCC shows a number that makes his calculations look completely incorrect. Nothing in the BIS report itself equates indirect exposure with CDS. Indirect exposure can contain many exposures potentially such mundane things as bonds held as custodian. Some tables in the BIS report state that the exposures do NOT include risk mitigants. I don't know what tables were used in the author's calculations since the details are not provided.
I am bearish the market, but I do think that anyone basing decisions on the 'fact' that U.S. banks have written that much naked CDS exposure on Greece (or Greek corporations) will be way too bearish american institutions if the number comes in at a small small fraction of 120 billion. Like 2 billion for example.
I am bearish the market, bearish banks, bearish credit, but this number seems so wrong and yet has captivated so many people's imagination, it scares me. And do check the comments under the original article that the author provides a link to. People there question the CDS assumption and the response from the author is weak.
Is Extreme Bearishness Enough for a Bottom? [View article]
do the investment sentiment indicators still work as contrary indicators? it seems like they were high while we went up for 13 weeks in a row on spx, are they no longer a good contrary indicator?
I think they might not be because too many people believe they are (just like VIX isn't a great leading indicator anymore because it trades wtih the risk on/risk off crowd).
I also don't know what percentage of flows are made from retail anymore, but I suspect daily volumes are not driven by retail so their sentiment and trading has far less impact than it used to.
Also, these surveys seem to have a bias in who submits their views, and I wonder if the internet has changed or amplified that bias?
I have cut my short because so many indicators do point to oversold, but the number of people pointing out low vix, high bearish sentiment, and the 200 day moving average as buy signals is also scary.
It's Time for the EU to Make an Example of Greece [View article]
i think any rally will be short lived, and am starting to think of what the unintended consequences of a voluntary rollover for banks would be, i think might disrupt future sovereign funding more than anyone would like, but just trying to play with some potential scenarios for now, but asides from not really fixing Greece I think this may open up a pandora's box of consequences for sovereign debt markets
RBC Sticks by Sino-Forest [View article]
Change Is the Status Quo: Likely Outcomes for Greece [View article]
A lot depends when banks sold. Even the 10 year bond, currently trading at 54, got above 90 last May after the first bailout, and back above 80 in October after EFSF and QE2. Shorter dated bonds had even more opportunities to be sold at relatively small losses. So if they timed sales reasonably well, and were holding back income (the bonds are current on interest) and maybe some reserve release, a big portion could be cleaned up. It does appear some were sold to ECB? Though I suspect at this stage as many hedge funds are long Greece debt as are short it, though no position is probably what the majority have.
On Lehman, the big losses were straight outright bond holders. Too many institutions aren't set up to handle losses on assets that they deemed as safe when they were purchased. Money market funds owned a lot of Lehman bonds. That was a far bigger problem than anything to do with CDS in my opinion.
National Bank of Greece Appears Undervalued [View article]
If you have more or better analysis of why it is Cheap I'd love to see it, but this article seemed lacking in depth for, what to me at least, is a distressed situation.
Change Is the Status Quo: Likely Outcomes for Greece [View article]
Basically, unlike a corporate bond, the docs for sovereign debt are pretty loose because i) no one really expected them to default, and ii) enforcing your rights on a sovereign entity (if you had any) in that sovereign nation is easier said than done
Change Is the Status Quo: Likely Outcomes for Greece [View article]
if banks or other investors roll into new bonds or extend the maturities, so long as those new securities, or amended existing ones remain current on interest, banks can hold them at par. The rating agencies can classify them as defaulted, but so long as Greece is making current payments on those bonds, banks can hold at par, so it is only the ECB that has to change its rule. The rating agencies would likely rate the new or amended bonds at the current Greek ratings. They would publish a note saying that "Greece Defaulted", it would go in their historical studies as a default, but then with the bonds still being paid they would adjust the current rating back to where it was before the "default".
A Credit Event is trickier, but my interpretation is that voluntary agreement (even if coerced) would not trigger a credit event - here is the language and you can make your own determination -
seekingalpha.com/artic...
Finally, Germany in particular has been making some noises that banks are in position to handle a Greek default. That actually makes sense to me. The banks have had over a year to get their positions to a manageable level so only the ultra dumb ones should still be overexposed. Secondly, the market is clearly aware of who holds Greek debt and is haircutting valuations on those banks significantly based on where Greek bonds are trading, so if there is a default, and post default the Greek bonds trade near their current levels, will the stocks of those banks react much worse? I think a lot is already built into valuations. Money market funds - not so much.
Everyone also seems to claim that saving Greece will stop the contagion? Huh? Saving Greece doesn't help, Ireland or Portugal or Spain make their payments. The contagion will spread to those no matter what happens in Greece and they will have to be bailed out in the similar way with all the similar arguments, or by then maybe governments will finally let the chips fall and land where they may and try and hold the system together and rebuild once the bad debt is finally flushed.
National Bank of Greece Appears Undervalued [View article]
Greek Debt Is a Liability, Not an Asset [View article]
bis.org/publ/qtrpdf/r_...
the conclusion that indirect exposures or 'other exposures' are banks selling credit protection cannot be proved from what I can see. There is definitely no line item in the BIS report and without the original author explaining his calculations in detail - which he has failed to do on his website when I last checked this afternoon it is impossible to see how he came to that conclusion.
Other exposures, could be any number of things. Repo agreements. Custodial agreements. Interest rate and FX swaps. The list goes on and there is NOTHING in the BIS report that states the other exposures or indirect exposures are CDS. On the other hand, DTCC data shows a total NET exposure to Greek sovereign CDS of 5 billion. So you have to take the alleged calculations of one person, which cannot be readily confirmed from my reading of the BIS report, or take a source where basically 100% of CDS trades pass through? hmmm....
One of the tables in section 9 of the BIS report, where the original author seems to pull some calculations explicity states the notionals do NOT include risk mitigants. Risk mitigants would be meaningful and any number that doesn't include risk mitigants would vastly overstate potential losses.
in one area, again, not sure the table that was used, "other potential exposures" is broken down into 3 subsets - derivatives of all kind were the smallest, then credit commitments, and then above all was guarantees extended. So if that is where the data is coming from, CDS, which would not even account for all derivative exposure is a tiny number and in line with DTCC data.
Maybe the original auther is correct, but spend 10 minutes looking through the BIS link where the original author supposedly figured out the CDS exposure of U.S. banks to Greece. i think you will be left with more questions then answers and so far those answers haven't been given.
Then spend 2 minutes on the DTCC report and find someone who provides a good reason why that data is incorrect? You will have a hard time doing that.
I'm bearish and happy to jump on a good bear bandwagon, but this calculation derived from the BIS study doesn't match with data that is reliable and the author has failed to provide details of how he came to his conclusion. The BIS report definitely doesn't provide the number outright so you are relying on someone's interpretation of that data and I believe it is off by orders of magnitude. US banks probably have less than 2 billion of open CDS exposure to Greece, not the 120 billion.
U.S. banks may have 99 problems, but 120 billion of naked CDS exposure isn't one of them.
The Countdown to Sovereign Debt Write-Offs Has Started [View article]
Wild Week Ahead for Global Markets [View article]
Next Global Credit Crisis: U.S. Banks and Greek Debt Will Be the Toxic Trigger [View article]
Next Global Credit Crisis: U.S. Banks and Greek Debt Will Be the Toxic Trigger [View article]
Greek Debt Is a Liability, Not an Asset [View article]
Time to Get Outraged by the Banks [View article]
If you go to the original site, the auther has not really done much to disspel the arguments. DTCC shows a number that makes his calculations look completely incorrect. Nothing in the BIS report itself equates indirect exposure with CDS. Indirect exposure can contain many exposures potentially such mundane things as bonds held as custodian. Some tables in the BIS report state that the exposures do NOT include risk mitigants. I don't know what tables were used in the author's calculations since the details are not provided.
I am bearish the market, but I do think that anyone basing decisions on the 'fact' that U.S. banks have written that much naked CDS exposure on Greece (or Greek corporations) will be way too bearish american institutions if the number comes in at a small small fraction of 120 billion. Like 2 billion for example.
I am bearish the market, bearish banks, bearish credit, but this number seems so wrong and yet has captivated so many people's imagination, it scares me. And do check the comments under the original article that the author provides a link to. People there question the CDS assumption and the response from the author is weak.
Is Extreme Bearishness Enough for a Bottom? [View article]
I think they might not be because too many people believe they are (just like VIX isn't a great leading indicator anymore because it trades wtih the risk on/risk off crowd).
I also don't know what percentage of flows are made from retail anymore, but I suspect daily volumes are not driven by retail so their sentiment and trading has far less impact than it used to.
Also, these surveys seem to have a bias in who submits their views, and I wonder if the internet has changed or amplified that bias?
I have cut my short because so many indicators do point to oversold, but the number of people pointing out low vix, high bearish sentiment, and the 200 day moving average as buy signals is also scary.
It's Time for the EU to Make an Example of Greece [View article]