Greek bondholder jigsaw…just a tad hazy?
The Slog interrogates the MSM estimates,
and finds much of it to be bollocks
I have always believed that if it is hard or well-nigh impossible to explain the maths and/or economics of a deal, the chances are it's a bum deal. I spent the best part of two hours last night and a further hour earlier today (Wednesday) trying to make sense of the numbers, the sectors, Greek Law, and English Law in relation to the levels Athens wants or needs to make this 'debt restructure via bond swap' albatross fly. Nobody anywhere has as yet been able to show their 'workings out' and thus convince me that we aren't watching a three-card trick here.
First, some opening remarks. In 2008, at least seven global banks lied about the Libor rate. That system is about to be scrapped because nobody trusts it any more. Every single bank in trouble ever has lied about its position. The Troika has lied in public about Greek progress, while telling an opposite tale in private. Goldman Sachs taught Athens how to lie to Brussels about its borrowings. The IIF has lied about the level of bondholder takeup throughout the week. And Venizelos has gone from smirking confidence to threats, from 66% level results to 90+% levels. The other main players involved – Draghi, Lagarde, Schauble, Sarkozy, Papademos and Merkel – have all lied about what's going on and what their aims are. So expecting the result of all this to be the truth would almost certainly represent the triumph of gullibility over glaring evidence.
Next, the bonds universe. There seems to be general agreement across the piece that the current level of takeup is, give or take a few per cent, around 30% of the total. Anything under 90% acceptance will require the use of compulsion by Athens (CACs) and most probably then trigger a technical default, following which Wall St's insurance sector will argue, wriggle, sue and appeal…but almost certainly not pay up.
Anything les than 66%, and completion cannot take place. Greece will then have seven days to avoid insolvency and – as Bankfurt reminded the Venizealots two days ago – the 130bn euros of bailout will be snatched back. So you can rest assured that, until 66% has been passed, Putin Electoral Rules will apply. Anyone ruling out the likelihood of massaging the numbers is being truly, deeply naive. (It'd get found out in the end of course – but cans, roads, boots etc etc). Now, the difference between 30% and 66% is 36%. So far we know that a smallish Swiss Group and two smaller Greek institutions have rejected the offer. The highest estimate I can put on their share is around 4% – a moveable feast because concerned legal groups don't like the way investors are being pushed around by the rainbow coalition of those who do want the deal to go through, and are encouraging smallholders to band together. Anyway, observe:
Declarations: 30% pro + 4% anti = 34%.
100% – 34% spookily = 66%.
66% – 30% = the Greek government's target to persuade = 36%.
34% – 4% = the anti-deal holdouts target = 30%.
Now on paper, this looks like Athens is in good shape: only 4% naysayers, and 30% already in the bag. The two realities that change all this are (1) the 30% needed by the anti-dealers probably don't need persuading to stay out at all: if they were in, they'd have said so by now; and (2) if the Venizealots miss their target by just 1%, they're dead. The anti-dealers, by contrast, need only another 22% out of 30 to knock the acceptance level below 75%, and require a quarter of all bondholders to be compelled using CACs.
Two further points here. First, my hunch based on feedback from Frankfurt yesterday is that under 75% take-up will trigger at the very least, howls of protest among the German-American-Troika contingent who want Greece amputated right now. They will spend every waking hour between now and March 12th (next Monday) finding things the Greeks didn't do or lied about in order to save their 130 billion bailout for…who knows? Italy, Spain or perhaps even France. (It sure as hell is not going to be spent on Portugal or Ireland).
Second, there is still absolutely no accurate assessment of the value of bonds held by Hedge Funds. The total bond pot is 177 billion euros, so around 54 billion is already accounted for. The organisations claiming to 'represent' Hedgies tell me their exposure is 10 billion (which I don't believe) and the doom theorists tell me it's 50 billion. Let's say for now that the number is twenty billion. That leaves a whopping 100 billion of junk bonds still unaccounted for.
Who are these folks? As far as I can tell, nobody knows. Here's a worryingly consistent set of estimates from the MSM during the last 36 hours:
'The most likely outcome may well be that Greece passes its 75 percent target and then uses CACs to ensnare the remainder'. (Reuters)
'People familiar with the matter say Greece is confident it can get to around 75%'. (Wall St Journal)
'Many of the potential holdouts' bonds are hedge funds…but takeup is expected to be about 75 per cent'. (FT)
Tell you what I think: it's bollocks. They don't know any more than I know.
But now here is a final twist in the tale: there are a further 29 billion euro's worth of debt on top of the 177 billion NOT subject to Greek Law…ie, they can't be compelled by CACs.
That's another 8% cert holdout. 8 + 4 = 12%. So to get 88% acceptance, Athens must persuade everyone else to buy-in without CACs. That simply isn't going to happen.
The bottom line is that (a) even based on what we know, Venizelos can't reach 90%. If he does, I simply won't believe it. And (b) extracting the non-Greek-Law holders who are Hedgies – it's reckoned to be about 70% – that means only just over 13% of the remaining Hedgies and other flotsam under Greek Law would have to say no to push the level below 75%.
I repeat what I said earlier: if these people wanted this deal, they'd have said so by now.
Now: IF the Hedgies exposure is only 10 billion, then what sort of institutions are holding the other 90 billion – Christmas Clubs? The Catholic Church?
And: IF the Hedgie exposure under Greek Law is at the top end – 50 billion euros – then 24% + 12% = 36%. That leaves a takeup of 64%, and consequently no completion, mass panic, falling skies, selling children into slavery, and all the rest of the drivel being scare-mongered by Charles Dallara yesterday.
I find it hard, in conclusion, to see how this deal can go through; and I still can't understand why so much of the pot is unknown unless the secretive Hedge Fund sector owns it. My own research throughout October and November convinces me that the private banks dumped Greek bonds in the manner of people running from a nuclear leak.
Aplogies for the length and complexity of this maths: genuinely, if someone knows a major assumption that's wrong here, or finds something I haven't considered, then I'd like to know.
I'm not in this to be a smartarse – although that's nice from time to time. I'm out (on this, as with all topics at The Slog) to use evidence to deconstruct bollocks. If someone can logically deconstruct my evidence, fair enough: it's all in a good cause.
