Saturday, March 31, 2012

Greek Bonds Worthless

The Bundesbank announced yesterday that it will refuse to accept Greek, Irish or Portuguese sovereign/bank bonds; ie it will cease to lend to commercial banks that use Greek, Irish or Portuguese bonds as collateral. As ekathimerini points out:
"It also means that the credibility of the new bonds issued is no different to that of the old ones they have replaced."
This effectively kills the European peripheral bond market and, by definition, the current structure of the Eurozone.

It is now only a matter of time before Greece, and other peripheral nations, leave or are kicked out of the Eurozone.

Friday, March 30, 2012

Statement of The Eurogroup - Deconstructed

I have deconstructed today's statement of the Eurogroup, my comments are in blue.

30 March 2012
Statement of the Eurogroup

The stability and integrity of the Economic and Monetary Union have required swift and vigorous measures that had been implemented recently, together with further qualitative moves towards a genuine Fiscal Stability Union.

This is a lie, there have been no "swift and vigorous measures".

In order to further improve market confidence and in accordance with the agreement reached at the Euro Summit on 9 December 2011 and reiterated on 2 March 2012, we have reassessed the adequacy of the overall EFSF/ESM lending ceiling of EUR 500 billion which, given EUR200 billion long term commitments of the EFSF, currently entails a 300 billion maximum lending volume for the ESM.

We agreed on the following principles:

· The paid-in capital of the ESM will be made available more quickly than initially foreseen in the ESM Treaty, in respect of national procedures. Two tranches of capital will be paid in 2012, a first one in July, a second one by October. Another two tranches will be paid in 2013 and a final tranche in the first half of 2014. In line with the ESM Treaty, the payment of the capital will be further accelerated if needed to maintain a 15% ratio between the paid-in capital and the outstanding amount of ESM issuances.

Too little too late. Oh, and by the way, there is no real funding as yet for this or the EFSF.

· The ESM will be the main instrument to finance new programmes as from July 2012. The EFSF will, as a rule, only remain active in financing programmes that have started before that date. For a transitional period until mid-2013, it may engage in new programmes in order to ensure a full fresh lending capacity of EUR 500 billion.

· The current overall ceiling for ESM/EFSF lending, as defined in the ESM Treaty, will be raised to EUR 700 billion such that the ESM and the EFSF will be able to operate, if needed, as described above. As of mid-2013, the maximum lending volume of ESM will be EUR 500 billion. The combined lending ceiling of the ESM and the EFSF will continue to be set at EUR 700 billion.

· In addition EUR 49 billion out of the EFSM and EUR 53 billion out of the bilateral Greek loan facility have already been paid out to support current programme countries. All together the euro area is mobilising an overall firewall of approximately EUR 800 billion, more than USD 1 trillion.

Using old debts to boost the "firewall", an "interesting" form of creative accounting!

· Moreover, euro area Member States have committed to provide EUR 150 billion additional bilateral contributions to the IMF.

The euro area made substantial progress over the past 18 months to address the challenges stemming from the sovereign debt crisis.

No it hasn't.

Progress was notably made with regard to fiscal consolidation and growth enhancing structural reforms in a number of countries, the successful implementation of the adjustment programmes in Ireland and Portugal, the Greek PSI operation and the agreement on a second Greek programme.

The Greek Prime Minister has today stated that the country will need a third bailout. The Greek PSI has not gone according to schedule, and foreign law bondholders are still holding out.

Important improvements were made to improve the governance of the euro area through enhancements of the Stability and Growth Pact, the new macro-economic imbalances procedure, the Euro Plus Pact and the Fiscal Compact enshrined in the new Treaty on Stability, Cooperation and Governance in the Economic and Monetary Union.

Finally, robust firewalls have been established. This comprehensive strategy has paid off and led to a significant improvement of market conditions.

There are no robust firewalls, and market conditions have not improved.

All in all this statement is bullshit!

Juncker Talks Bollocks

Euro Group President, Jean-Claude Juncker, has just claimed that Greece's failure to make a timely repayment of their foreign law bonds that are not exchanged does not constitute default.

I see....

Thursday, March 29, 2012

UK In Double Dip Recession

The Organisation for Economic Co-operation and Development (OECD) has reported that the UK economy shrank in the first three months of the year.

Between January and March economic output fell, compared to the previous quarter, at an annual rate of -0.4%.

Given that there were three months of negative growth at the end of 2011, this means that the UK is now yet again officially in recession (ie a double dipper).

Pope To Pray For Euro

The FT reports that a press release has been sent out today by the office of Herman Van Rompuy, announcing yet another emergency eurozone summit – on April 1.
The presence of His Holiness the Pope affords an opportunity to pray for divine intervention to save the euro.

This is now seen as the most credible strategy.”
Oddly enough, the press release is not on the European Council's website!

Here is the text of the press release:
Brussels, 29 March 2012
Eurozone summit next weekend
Press Statement

It has been confirmed that a Eurozone summit will be held on April 1.

Due to inadvertant wording of the Treaty on Stability, Coordination & Governance, which refers to countries "whose currency is the euro", it has been confirmed that this summit will also include the heads of state or government of Montenegro, Kosovo, San Marino, Monaco, Andorra and the Vatican City, all of which use the euro.

The presence of His Holiness the Pope affords an opportunity to pray for divine intervention to save the euro. This is now seen as the most credible strategy.

Indicative programme:
11.00 meeting with the President of the European Parliament
12.00 family photo
12.30 working session
+/- 19.00 press conference

R u e d e l a L o i 1 7 5 B – 1 0 4 8 B R U S S E L S T e l . : + 3 2 ( 0 ) 2 2 8 1 6 3 1 9 F a x : + 3 2 ( 0 ) 2 2 8 1 8 0 2 6
8255/12 1

Wednesday, March 28, 2012

Crisis Almost Over - LOL!

The Italian Prime Minister, Mario Monti, who is evidently something of a clown like his predecessor has claimed that the Eurozone's woes are "almost over":
"The eurozone has gone through a huge crisis. I believe that this crisis is now almost over."
Sure enough the markets have fallen as, quite rightly, they attach little credence to anything that a Euro politician says these days.

Greek Banks Have Guts Ripped From Them

Reuters reports that firms and consumers are, unsurprisingly, continuing to withdraw money from Greek banks.

Private sector deposits in Greek banks fell by 2.7%, after a 3% fall in January. Deposits at the end of February were Euro170.1BN, the lowest level since October 2006.
For why?

No one trusts the Greek financial system anymore.

Tuesday, March 27, 2012

Bank of England Disconnected From Reality

The Bank of England, in its latest Quarterly Bulletin, has demonstrated that it is somewhat disconnected from reality and displays a mack of understanding of human nature.

In the bulletin, the Bank warns that “saving appears to be too low”:
If current households choose not to pass on those gains to later generations, they may be able to spend more and save less. Future generations, however, will need to save more for their retirement or work longer.”
That is all very well, maybe. However the Bank appears to have forgotten that UK interest rates (0.5%) are at the lowest they have been for years.

Add to that the fact that we are being told that we will have to endure years of austerity and, like it or not, people's reaction will be very human; namely to enjoy the good times (ie spend) whilst they still can.

Economic cycles and people's reactions to them are driven by emotions not logic.

Odds of Greece Leaving The Euro? Check William Hill

I am amused to see that the Office of Budget Responsibility (OBR), wary of the likelihood of Greece leaving the Euro, checks the odds of Greece leaving at William Hill the bookmakers.

The Telegraph reports that the OBR’s Steve Nickell told the Treasury Select Committee:
Occasionally I go and look at William Hill, they have the odds on these sorts of things. Last time I looked, the odds of Greece not using euro by the end of the year were the order of about 40pc, a bit lower after the latest Greek bail-out talks.”

Monday, March 26, 2012

Problem Solved?

Despite the hype from the Eurozone that all is well and that problems are being resolved, it seems that some are still rather worried about the reality.

The Telegraph reports that Klaus Regling, head of the European Financial Stability Facility (EFSF), has warned that the eurozone must reinforce its firewalls to avoid more market volatility.
"More money would reassure markets. Wrongly or rightly the fact is that big numbers in the shop window create calm." 

Even Angela Merkel appears to be prepared to yield to the pressure and agree to combine the EFSF and its permanent replacement, the European Stability Mechanism (ESM).

As to whether these vehicles actually have any funds in them is of course another issue!

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?


Friday, March 23, 2012

Wheels Fall Off Greek Bond Swap

As the take up the foreign law bond swap in Greece has been less than expected (people who didn't have their heads in the sand never expected the take up to be high), Greece is now expected to push back the foreign law bond swap deadline from today's March 23 deadline.

"Ironically" Greece's listed banks have asked for an extension of 30 days to their March 31 deadline for reporting their 2011 results to assess losses resulting from the recently completed bond swap.

If at first you don't succeed, change the rules!

Goldman Sachs Organises Muppet Hunt

Following on the from the Muppetgate scandal, in which Greg Smith publicly resigned and humiliated Goldman Sachs (Goldman employees allegedly refer to their clients as "muppets"), Goldman Sachs is taking no chances about further damage to its reputation. It has organised a Muppet hunt.

Goldman Sachs has started scanning emails for the term "muppet"  It is not clear as to whether the firm is also searching for; Kermit, Miss Piggy, Fozzie Bear or Gonzo the Great.

Neither is it clear what Goldman's will do to any hapless employee who has used the offending term in an email.

As to whether this scan is a breach of employee's rights of privacy depends very much on their terms and conditions of employment, and what rights they signed away when joining Goldman Sachs.

Wednesday, March 21, 2012

The Budget - Summary and Details

Here is a link to the details of today's Budget as per HMT:


Whilst here are the headlines of today's budget (source):

Tax changes

The personal allowance will rise to £9,205 in April 2013
  • The top rate of Income Tax will reduce from 50 per cent to 45 per cent in April 2013.
  • The Income Tax personal allowance (the amount you can earn before you pay tax) will increase to £9,205 in April 2013.
  • Age related allowances will be frozen from April 2013, moving towards a simpler, single personal allowance for everyone regardless of age.
  • From 2014-15, taxpayers will receive a new Personal Tax Statement, telling them how much Income Tax and National Insurance they have paid and what their money is being spent on.
  • Income Tax reliefs that aren't already capped will be capped at £50,000 or 25 per cent of income, whichever is higher.
  • The main rate of Corporation Tax will reduce by an additional 1 per cent from April 2012.
The new Income Tax rates for the 2012-13 tax year were published in December 2011 and will start on 6 April 2012.


Child Benefit will be withdrawn for households where someone has an income of more than £50,000
  • Child Benefit will be withdrawn when someone in a household has an income of more than £50,000. The benefit will be withdrawn gradually; 1 per cent of Child Benefit for every extra £100 earned over £50,000. Only those with an income of more than £60,000 will lose all their Child Benefit.
  • Servicemen and women serving in operations overseas will receive 100 per cent relief on an average Council Tax bill.
The new rates for the State Pension and benefits for 2012-13 were published in December. These rates start in April 2012.

Alcohol and tobacco

  • Duty rates for alcohol will rise on 26 March 2012 at the same rate as last year - two per cent above inflation. The government will shortly be publishing an Alcohol Strategy to address alcohol abuse.
  • Duty on tobacco will rise by five per cent above inflation - a rise of 37p on a pack of cigarettes. This will come into force at 6.00 pm on 21 March 2012.

Motoring and travel

  • Vehicle Excise Duty (car tax) will increase by inflation only.
  • The government will take forward many of the recommendations from Alan Cook’s independent review of the road network, including developing a national roads strategy.
  • The government will also consider new ownership and financing models for the national road network.


  • A new Stamp Duty Land Tax rate of 7 per cent will be introduced for residential properties over £2 million from 22 March 2012.
  • The Stamp Duty Land Tax charge applied to residential properties over £2 million bought into a corporate envelope will be increased to 15 per cent from 21 March 2012. There will be a consultation on the introduction of an annual charge on £2 million residential properties which are already contained in corporate envelopes.
  • A New Buy Scheme was introduced last week to help those who cannot afford the larger deposits that some mortgage companies demand.
  • The government will fund an extra £100 million of improvements in the accommodation of the armed forces and their families.


  • The current system, where pensioners can receive an additional State Pension as well as their basic pension, will be simplified. This means that future pensioners will receive only one single-tier pension, based on contributions. This is currently estimated at around £140.
  • There will be an automatic review of the State Pension age to ensure it keeps pace with increases in life expectancy. Details of how this will work will be published this summer.
  • There will be no changes to pension relief.


Digital economy

  • The government has committed to providing 90 per cent of the population with access to superfast broadband.
  • There will be improved mobile phone coverage for rural areas and along key roads.
  • Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, London, Manchester and Newcastle are to become broadband super-connected cities, as part of the £100 million investment announced at the 2011 Autumn Statement.
  • £50 million will be used to fund a second wave of smaller cities.

The economy

The UK economy is predicted to grow by 0.8 per cent this year, and 2 per cent in 2013
  • The independent Office for Budget Responsibility’s (OBR) forecasts for UK growth and inflation are broadly unchanged from its November forecasts.
  • Growth: its growth forecast for the UK this year is 0.8 per cent; they forecast growth of 2 per cent in 2013, 2.7 per cent in 2014, and 3 per cent in 2015 and 2016.
  • Inflation: expected to fall from 2.8 per cent this year to 1.9 per cent next year, and then 2 per cent by 2016
  • The OBR’s forecast for the unemployment rate is unchanged from last Autumn - the rate is expected to peak this year at 8.7 per cent and fall to 6.3 per cent by 2016.
  • Borrowing: public sector net borrowing (PSNB) is expected to total £126 billion this year, falling to £120 billion next year. It is then forecast to to fall to £98 billion in 2013-14, reaching £21 billion by 2016-17.

The Budget

Today, in case you were unaware, is Budget Day.

It is likely to be a damp squib, as most (if not all) of the headline measures/changes etc have already been leaked.

This is without doubt the most leaked budget in history.

When I was a lad people would have been flogged for leaking budget details (it is after all price sensitive information), how times change!

Tuesday, March 20, 2012

Rat Leaves The Sinking Ship

As the Greek Parliament votes on accepting the second bailout, markets are already factoring in the need for a third bailout (if Greece remains in the Eurozone).

As a portent of the future, Greece's Finance Minister, (Evangelos Venizelos) has left office today so that he can lead PASOK into the next general election.

The fact that he was meant to be managing the constitutional changes, necessary for the second bailout to stand a chance of working, appears to have escaped him!

Monday, March 19, 2012

Road Privatisation - The Road To Hell

David Cameron has, quite rightly, observed that Britain's roads are in a mess.

Hi solution?

Privatisation of motorways and A roads, whereby companies would lease roads and receive a portion of the annual vehicle licence fee to maintain and upgrade the network. Firms would be allowed to charge tolls and, theoretically, use the revenues received to build more roads.

An "interesting" idea

However, given the shambles of the privatised rail network, airports, and water companies, I am somewhat "baffled" at Cameron's belief that this will actually work.

Friday, March 16, 2012

Hector Sants Resigns Again

Hector Sants (CEO of the failed, and soon to be defunct, FSA) has finally resigned from office.

He had resigned once before in 2010, and was due to leave in the summer of that year. However, he was persuaded by George Osborne to stay on to become deputy governor of a new regulator due to "go live" in 2013:

"As predicted on this site, George Osborne has sounded the death knell of the ineffectual and inept FSA (ironically, despite its lousy performance, FSA staff were paid nearly £22M in bonuses last year).

Osborne has stated that it will cease to exist in its current form, and a "Consumer Protection and Markets Authority" will be created.

Hector Sants, the CEO of the FSA, will stay to become the new deputy governor and chief executive of the new regulator. That announcement is to be treated with a degree of scepticism. The new body will be considerably less powerful than the FSA, and it is likely that as soon as the transition has occurred Sants will depart (as this in effect a demotion)

As noted, this was in effect a demotion, as the Bank of England's role is to be considerably enhanced. Therefore it is not surprising that Sants has decided to step down this summer, his role in the new Prudential Regulatory Authority (PRA) body will be taken on by the Bank of England's Andrew Bailey.

Despite persuading him to stay on in 2010, Osborne doesn't seem to have offered official public thanks to Sants for his work.

Why Greece Should Leave The Eurozone

A cafe without coffee, and a bookstore which can't sell books!

Greece Under Foreign Occupation

Greece will have foreign financial experts, monitoring its "progress", in situ for at least the next two years.

Thursday, March 15, 2012

Emergency Oil Reserves Tapped

The US and UK have agreed (ahead of the US fleet boosting its presence in the Gulf, and SWIFT cutting Iran off from the world's financial system) to release reserves of emergency oil stocks.


The Whitehouse are currently denying the veracity of this report. Meanwhile the "inaccurate" report has had the desired effect of driving oil prices lower.

Funny that!


The Prime Minister's official spokesman re Obama Cameron talks has admitted that the issue was discussed:

"The issue of oil supply was discussed but no decisions were made."

You can rest assured that the decision has been been made, and will be implemented on a predetermined date/event.

Greece Is A Busted Flush - Greece Printing Its Own Euros

I have written on this site before that Greece is a busted flush. However, those of you who still doubt this, and cling to the hype spewed forth by the Eurozone that the second bailout will fix Greece may care to consider the following:

1 Greece is now printing its own Euros, because it has nothing left of value to offer the ECB as collateral for Emergency Liquidity Assistance (ELA)

2 Greece's unemployment rate rose to 20.7% percent in the last three months of 2011. Youth unemployment now stands at a staggering 40%.

3 Evangelos Venizelos (a rat leaving the sinking ship) has resigned as finance minister, thus undermining any attempts by Greece to push through the financial reforms it agreed to in exchange for the second bailout.

Greece is a busted flush!

Wednesday, March 14, 2012

Why I Am Leaving Goldman Sachs

There is a remarkable letter in the New York Times from Greg Smith (executive director and head of the Goldman Sachs United States equity derivatives business in Europe, the Middle East and Africa) who, after 12 years, is leaving Goldman Sachs and has penned his reasons why.

Seemingly the motive of making money at the client's expense (apparently this was not the culture of the firm 12 years ago, or at least Smith claims not to have seen it then) has turned him against Goldman Sachs.

Additionally, he was irked by the fact that Goldman employees allegedly would refer to their clients as "muppets" (I understand that Kermit, Miss Piggy et al are considering legal action against Goldman's for this alleged slur).

As regards Smith's career in Goldman's, his CV (or Resume as it is called in the USA) is proving to be a little hard to track down on the web (here is his Facebook page) aside from this entry on Find The Best:

Professional Bio

Advisor NameGregory Smith
Individual CRD #4438607
Registered Titles
Broker-Dealer Agent
FirmGoldman, Sachs & Co.
Compare Goldman, Sachs & Co. Financial Advisors
Current Office Employment Dates1/1/11 - Present
Firm CRD #361
State Registrations
NevadaNew Jersey
West Virginia
Independent ContractorNo

Work History

FirmCityStateStart DateEnd Date
Goldman, Sachs & Co.New YorkNY12/1/021/1/11
Goldman, Sachs & Co.New YorkNY1/1/11
Goldman, Sachs & Co.New YorkNY1/1/11Present
*Please note that the IAR is required to provide this information only while registered with an investment advisor firm and the information is not updated through Form U4 after the IAR ceases to be registered. Therefore, an employment end date of

Financial Exams

Exam DateExam CodeGrade
12/30/02Series 3Passed
10/26/06Series 55Passed
10/17/01Series 63Passed
10/9/01Series 7Passed

It is possible that he had something to do with Goldman's debacle in Libya (given that he had responsibility for the Middle East):

"In early 2008, according to interviews and an internal document review conducted by The Wall Street Journal, Libya's sovereign wealth fund invested $1.3 billion in stock and currency options with Goldman, only to watch as the investments shrunk to a measly $25.1 million--that's two percent of the initial value, for those keeping score--as the credit crisis hit. 

A Libyan official was so furious with the bank during one meeting in Tripoli that Goldman officials hired a security guard to protect them before they left Libya, consulted Goldman chief Lloyd Blankfein (above, on right) about how to mend the relationship, and offered Libya the opportunity to become one of Goldman's biggest shareholders by investing $3.7 billion in preferred shares or corporate debt. 

The negotiations eventually collapsed, the Journal adds, but the episode is emblematic of a period of several years when Goldman and other Western banks rushed to do business with Libya after the U.S. decided to lift its sanctions against the country in 2004. That period, of course, is now history."

Maybe not, for the Wall Street Journal notes the following:

"Mr. Smith described himself as an executive director and head of Goldman’s U.S. equity derivatives business in Europe, the Middle East and Africa.

A person familiar with the matter said Mr. Smith’s role is actually vice president, a relatively junior position held by thousands of Goldman employees around the world. And Mr. Smith is the only employee in the derivatives business that he heads, this person said."

Whatever Smith's actual role in Goldman's, and as to whether he finds himself sued by Goldman Sachs for this extraordinary public outburst remains to be seen. In the meantime Goldman are now including 3 year non-disparagement clauses in all termination agreements (if they can get this by the lawyers, these will be retrospective).

The Twitter #Finance100

Economia and Peerindex have drawn up a list of those who have the most sway in the financial world, and are picked up and followed by key Twitter users.

Their online influence is measured with a score of between 0 and 100 to gauge their authority across social media.

Headed by Nouriel Roubini, the respected American economist, the top accounts are those whose messages are retweeted, shared, responded to or argued with the most.

These tweeps will keep changing in the listing as they gain or fall in significance. Follow using the hashtag #Finance100.

Tuesday, March 13, 2012

The Second Economic Adjustment Programme for Greece - Deconstructed

Andrew Tyrie, chairman of the Treasury Select Committee, has called for Greece to exit the Euro and for the resources of the International Monetary Fund (IMF) to be significantly boosted to tackle future financial crises.

He is talking sense, based on the report "The Second Economic Adjustment Programme for Greece" issued today by the European Commission, Greece doesn't have a cat's chance in hell of recovering whilst it remains a prisoner of the Eurozone.

Here are a few choice cuts from the report, together with my deconstruction of what they mean for Greece:

"Greece made mixed progress towards the ambitious objectives of the first adjustment programme. Several factors hampered implementation: political instability, social unrest and issues of administrative capacity and, more fundamentally, a recession that was much deeper than previously projected."

In other words, the figures on which rescue "plans" are based are wrong and consistently unreliable.

"..insufficient progress was made in modernising revenue administration and expenditure control, and steps taken in the fight against tax evasion and the prompt settlement of payments to suppliers have remained far too timid."

Until Greece actually develops a tax system that does what it says on the box, it will not be able to fund itself. This of course won't happen, as the political system is corrupt.

"Greece has been unable to return to the markets so far."

As a result of the debt swap Greece will never be able to return to the markets for funding, as the markets will never trust it enough to lend it money again.

"The economy continues to contract and short-term growth rates have been further revised downwards. In 2011, the economy is estimated to have contracted by 6.9 percent."
The economy is screwed!

"Greece's medium-term economic performance will crucially depend on the implementation of structural reforms. These reforms, particularly those in the labour market, the liberalisation of several sectors and a number of measures to improve the business environment should help promote competition, spur productivity and employment growth and reduce production costs."

Based on "progress" so far, these reforms simply will not happen.

"Greece has to restore competitiveness through an ambitious internal devaluation, i.e., a reduction in prices and production costs relative to its competitors, as well as a shift from a consumption-led to an export-led economy. Since a strong increase in productivity takes time, an upfront reduction in nominal wage and non-wage costs is necessary."

Things are going to become a lot worse for the ordinary working/unemployed Greek citizen.

"Current projections reveal large fiscal gaps in 2013-14. Current projections reveal a cumulated fiscal gap in 2013-14 of 5½ percent of GDP. Therefore, substantial additional expenditure cuts will have to be announced and adopted by Greece in the coming months, in particular when Greece updates its medium-term budget (medium-term fiscal strategy or MTFS) in May 2012."

As noted, things are going to become a lot worse!

"Progress in privatisation has been slower than planned."

Another pipe dream that will never materialise!

"In a moderately optimistic but realistic scenario, if Greece meets the programme targets, the debt-to-GDP ratio will decline to about 117 percent in 2020. However, it will remain high for many years and, therefore, be susceptible to adverse domestic and global developments."

In eight years, what could possibly go wrong?

"Implementation risks will remain very high. The success of the second programme depends chiefly on Greece. It crucially hinges on the full and timely implementation of fiscal consolidation and  growth-enhancing structural reforms agreed under the programme. "

Not a cat's chance in hell of succeeding!

Monday, March 12, 2012

RBS and Fred Goodwin Sued For £2.4BN

An RBS Action Group has been set up by 7,400 private shareholders and 80 institutional ones (including NatWest Stockbrokers - part of RBS) to sue Royal Bank of Scotland (RBS) and its former directors including ex CEO Fred Goodwin for £2.4BN.

The claim states that RBS misled investors in the prospectus for its £12BN rights issue to fund the takeover of the Dutch bank ABN Amro.

Mike Neill, chairman of the action group, is also less than impressed with the FSA whitewash of the sorry affair (as is everyone else!).

Preliminary Greek Deliverable Obligations

In case anyone thought that the $3BN or so credit event was the end of the matter for Greece, I recommend that you take a look at ISDA's list of Preliminary Greek Deliverable Obligations.

ISDA list Greek guarantees/debts (over and above the Euro130BN bailout) that exceeds $100BN, and are technically repayable immediately now that Greece has defaulted on its bonds.

Saturday, March 10, 2012

ISDA Confirms Greece Has Defaulted

After seven hours of deliberation, ISDA has finally reached a unanimous decision that the Greek bond swap represents a default; thereby triggering CDS insurance totalling $3.5BN.

Why waste seven hours discussing what was obvious to everyone else?

They could have saved time by simply reading my article yesterday!

Friday, March 09, 2012

Greece Defaults

As expected, the "voluntary" take up of new Greek bonds for old has not reached the 90% threshold necessary for it to be considered "voluntary".

85% of Greek holders of bonds (bound by Greek law) agreed to the deal (ironically the Greek Finance Ministry employees' pension fund was among those that did not agree to a "voluntary" participation), whilst only 69% of non-Greek debt (bound by English law) participated. Needless to say Greece has attempted to move the goalposts on the latter, by extending the period for participation to March 23 (yesterday they denied that they would do this).

Whatever the fiddles and fudges that Greece now attempts, the fact remains that the 90% threshold has not been reached and that CACs will have to be used; ie Greece has defaulted.

For form's sake Isda has announced that its determinations committee will meet at 1pm GMT today, to discuss a potential credit event in Greek CDS. 

After that the whole process will be mired in litigation.

Oh, and by the way, does anyone really believe the figures announced by Greece?

Only when they are fully audited by a genuinely independent person/organisation may we have any real faith in the numbers.

Here is a link to the full press release from the Hellenic Republic Ministry of Finance (for what it is worth).

Thursday, March 08, 2012

Deadline Day For Greek Bond Swap

Today is Deadline Day for the Greek bond swap, creditors have until 20:00 GMT to accept the deal.

However, for reasons best known to the Greek government (perhaps something to do with disruption being caused by today's solar flares?), the announcement about the outcome of the deal won't be made until 06:00 GMT Friday.

The hype, spin and misinformation continues as Greece and the Eurozone continue to talk up the prospects of a successful deal. The latest figures being bandied about suggest that there will be a 75% take up, ie 25% of bondholders have not agreed to the deal (it is speculated that hedge funds are actually buying blocking stakes). This will mean that CACs will have to be used, and Greece will officially default (as the deal will not count as "voluntary").

Aside from the legal technicalities, wrt percentages and CACs, there are also the political nuances. Anything short of 80% will be considered by the Germans as being a failure.

Oh, and irrespective of the "success" or otherwise of this deal, the grim financial reality that Greece faces was highlighted this morning by today's unemployment figures that show that 21% of the workforce were unemployed in December (youth unemployment now stands at over 51%!).

Wednesday, March 07, 2012

Greece Mortgages Its Future and Shafts Its Pensioners

Approximately Euro19BN in Greek government bonds, managed by the Greek central bank on behalf of pension funds and other state organisations, will be included in Greece's debt swap plan.

Thus shafting the pension of Greek public sector workers.

Greece To Default

The Greek Debt Management Agency confirmed yesterday what everyone knew, namely that if a majority of bondholders agree to the deal it "intends... to declare the proposed amendments effective and binding on all holders".

This means that Collective Action Clauses (CACs) will be used, and that Greece will have defaulted.

However, the threshold required for a "majority" is 66%.

There is serious speculation that the 66% "majority" target will not be reached by 20:00GMT Thursday.

In the event that this target is missed, the whole plan fails and the Euro130BN bailout (which Greece has yet to receive) will be taken back.

Tuesday, March 06, 2012

Denials and Silence Speaks Volumes

Thursday, in theory, is the deadline for Greece's bond swap (where private sector investors will take a 75% haircut).

Despite the hype being spewed forth by Greek authorities, and those with a vested interest in seeing the deal go through (ie the institutional investors), Greece has been forced to deny rumours that Thursday's deadline may be moved back. Unsurprisingly no one actually believes that the deal can take place without CACs (collective action clauses) being triggered.

The hedge funds have most to gain from CACs being triggered and Greece being declared in default. Hence, hype about IIF's accepting the deal is irrelevant.

The silence of the hedge funds, and the denials about a postponement of Thursday's deadline speaks volumes.

Monday, March 05, 2012

Greece's 38 Steps

Here, courtesy of the FT, is a link to the Troika evaluation of the 38 items that needed to be completed by Greece (prior to the second bailout being handed over), and given to Athens two weeks ago:

- The 38 Steps

Saturday, March 03, 2012

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.

The Financial Crisis Explained

Friday, March 02, 2012

The "Irony" of The ECB Overnight Deposits

Hot on the heels of LTRO II, the ECB overnight deposit facility has hit a record high of Euro776.94BN.

This of course is rather "ironic", given that Draghi et al were claiming that LTRO II was aimed at stimulating bank lending.

They of course knew that it would be used by banks to sandbag themselves against the oncoming Greek default, but couldn't admit that.

Thursday, March 01, 2012

Beware The ISDA of March

Following this morning's meeting, ISDA has announced that CDSs on Greek bonds have not been triggered, ie there is no credit event....yet.

However, ISDA has also stated that its decision may change as PSI progresses.

One might ask how it is that a 75% haircut is not a credit event, and has ISDA taken leave of its collective senses?

The answer is that we will have to wait until the CACs are used, before determining whether ISDA has taken leave of its senses (ie CACs will be th trigger).

Here is their statement in full:

EMEA Determinations Committee Statement March 1, 2012

In light of today’s EMEA Determinations Committee (EMEA DC) unanimous decisions in respect of the two potential Credit Event questions relating to the Hellenic Republic (DC Issue 2012022401 and DC issue 2012022901), the EMEA DC has agreed to publish the following statement:

The first submitted question (DC Issue 2012022401) asked whether the holders of Greek law bonds had been subordinated to the ECB and certain NCBs whose bonds were acquired by the Hellenic Republic prior to the implementation of new Greek legislation such that such subordination constitutes a Restructuring Credit Event. (The full text of the question is available here

The EMEA DC unanimously determined that the specific fact pattern referred to in the first submitted question does not satisfy either limb of the definition of Subordination as set out in the ISDA 2003 Credit Derivatives Definitions (the 2003 Definitions) and therefore a Restructuring Credit Event has not occurred under Section 4.7(a) of the 2003 Definitions.

The second submitted question (DC Issue 2012022901) asked whether there had been any agreement between the Hellenic Republic and the holders of private Greek debt which constitutes a Restructuring Credit Event. (The full text of the question is available here

The EMEA DC determined that it had not received any evidence of an agreement which meets the requirements of Section 4.7(a) of the 2003 Definitions and therefore based on the facts available to it, the EMEA DC unanimously determined that a Restructuring Credit Event has not occurred under Section 4.7(a) of the 2003 Definitions.

The EMEA DC noted, however, that the situation in the Hellenic Republic is still evolving and today’s EMEA DC decisions do not affect the right or ability of market participants to submit further questions to the EMEA DC relating to the Hellenic Republic nor is it an expression of the EMEA DC’s view as to whether a Credit Event could occur at a later date, in each case, as further facts come to light.

CDS and The "Secret" ISDA Committee

The "secret" committee of the International Swaps and Derivatives Association (ISDA) will meet today, to decide if the Greek haircut constitutes a credit event which would trigger credit default swap contracts (CDS).

Who are on the "secret" committee?

These guys:

ISDA Determinations Committees (effective 30 November 2011)

Voting Dealers
Bank of America / Merrill Lynch
Credit Suisse
Deutsche Bank
Goldman Sachs
JPMorgan Chase Bank, N.A.
Morgan Stanley
Société Générale

Consultative Dealers
BNP Paribas
The Royal Bank of Scotland

Voting Non-dealers
BlueMountain Capital (Second Term Non-dealer)
Citadel LLC(First Term Non-dealer)
D.E. Shaw Group (First Term Non-dealer)
Elliott Management Corporation (Third Term Non-dealer)
Pacific Investment Management Co., LLC (Second Term Non-dealer)
Asia Ex-Japan
Voting Dealers
Bank of America / Merrill Lynch
BNP Paribas
Credit Suisse
Deutsche Bank
Goldman Sachs
JPMorgan Chase Bank, N.A.
Morgan Stanley
The Royal Bank of Scotland
Consultative Dealers
The Royal Bank of Scotland
Voting Non-dealers
BlueMountain Capital (Second Term Non-dealer)
Citadel LLC(First Term Non-dealer)
D.E. Shaw Group (First Term Non-dealer)
Elliott Management Corporation (Third Term Non-dealer)
Pacific Investment Management Co., LLC (Second Term Non-dealer)
Australia and New Zealand
Voting Dealers
Bank of America / Merrill Lynch
BNP Paribas
Credit Suisse
Deutsche Bank
Goldman Sachs
JPMorgan Chase Bank, N.A.
Morgan Stanley
Société Générale

Consultative Dealers
The Royal Bank of Scotland

Voting Non-dealers
BlueMountain Capital (Second Term Non-dealer)
Citadel LLC(First Term Non-dealer)
D.E. Shaw Group (First Term Non-dealer)
Elliott Management Corporation (Third Term Non-dealer)
Pacific Investment Management Co., LLC (Second Term Non-dealer)
Voting Dealers
Bank of America / Merrill Lynch
BNP Paribas
Credit Suisse
Deutsche Bank
Goldman Sachs
JPMorgan Chase Bank, N.A.
Morgan Stanley
Société Générale
Consultative Dealers
The Royal Bank of Scotland

Voting Non-dealers
BlueMountain Capital (Second Term Non-dealer)
Citadel LLC(First Term Non-dealer)
D.E. Shaw Group (First Term Non-dealer)
Elliott Management Corporation (Third Term Non-dealer)
Pacific Investment Management Co., LLC (Second Term Non-dealer)
Voting Dealers
Bank of America / Merrill Lynch
BNP Paribas
Credit Suisse
Deutsche Bank
Goldman Sachs
JPMorgan Chase Bank, N.A.
Morgan Stanley

Consultative Dealers

The Royal Bank of Scotland

Voting Non-dealers

BlueMountain Capital (Second Term Non-dealer)
Citadel LLC(First Term Non-dealer)
D.E. Shaw Group (First Term Non-dealer)
Elliott Management Corporation (Third Term Non-dealer)
Pacific Investment Management Co., LLC (Second Term Non-dealer)