Greek CDS insurance payments not triggered - ISDA

[dipsydoodle]

Source: Reuters

(Reuters) - Greece's recent moves to prepare for a debt restructuring have not triggered a payout on credit default swaps, the International Swaps and Derivatives Association said on Thursday.

However, a credit event is still widely expected if Greece uses recently approved legislation enabling it to force its debt restructuring upon all of its private creditors. This could happen shortly after the window for the restructuring deal closes on March 8.

ISDA's Thursday ruling means holders of these insurance contracts, worth a net $3.25 billion (2 billion pounds), will not receive payment at this stage, though further rulings based on any new questions are still possible.

"The situation in the Hellenic Republic is still evolving and today's EMEA (determinations committee) decisions do not affect the right or ability of market participants to submit further questions," ISDA said in their statement.

Read more: http://uk.reuters.com/article/2012/03/01/uk-markets-bonds-idUKTRE8200Z420120301

[xchrom]

1. du rec. nt

[Po_d Mainiac]

2. Here are the voting members of the committee

EMEA

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

Consultative Dealers
Citibank
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)
pretty good chance they dumped their holdings on the ECB or US-FRB, leaving the small fry to play 'Hide the Greek Bond Weenie'

[Yo_Mama]

3. As soon as they use the CAC it will be

The Greek Parliament didn't pass that for fun.

They will be triggered.

[dipsydoodle]

6. Do you mean this ?

Update: ISDA: ECB’s Greek CAC Exclusion Does Not Trigger CDS http://www.forexlive.com/blog/2012/03/01/update-isda-ecbs-greek-cac-exclusion-does-not-trigger-cds/

and here too : Greek insurance payout still seen despite "No" vote
http://uk.reuters.com/article/2012/03/01/uk-markets-bonds-idUKTRE8200Z420120301

[Yo_Mama]

7. That's the decision of the ECB NOT to subject itself to the CAC

It's a completely different thing for all the private interests that now hold bonds. The CAC was basically passed for them - everyone knows that some of the hedgies will not accept the deal. There's nothing in the deal for them. They'd do much better if they trigger the swaps coverage and triggering it is their "lever".

So it is a game of chicken. If CAC is used to impose the writedown on those who don't agree voluntarily to take it, then I don't see any way payouts cannot be triggered. Voluntary deals do not trigger CDS payouts; involuntary writedowns do.

I can't see how they can escape this. We'll know in about a week.

The current decision addressed the ECB exclusion and the passage of the CAC law. It did not cover USE of the CAC. If creditors have losses imposed upon them by the government of Greece, that is a credit default under the terms of the CDS contracts.

The CAC law itself is not a default. The decision on the ECB exclusion is highly questionable, because it drives down the value of all those who are holding other Greek bonds, therefore it reduces the market value of the bonds. If you are a private entity holding long maturity Greek bonds, you just got handed a real loss. Admittedly it is a loss recognized only about a week ahead of the writedown package, but it is a loss. The vagueness of this whole process has been used to prevent these events from being ruled to have occurred.

The ECB decision is going to cause future potential buyers to question the value of CDS protection. This will be very interesting.

[Yo_Mama]

8. Dipsy - I haven't seen this written anywhere.

Suppose you are a group of investment banks and you have oodles of CDS out on Greek bonds. It is strongly in your collective interest to keep the CDS from being triggered.

Now suppose you are an enterprising hedgie holding a bunch of Greek bonds you bought at 20% of face value. As long as too many others didn't do the same thing, you are in an excellent bargaining position. In order to get enough of the bondholders to take the deal, it would really pay that group of investment banks to buy the bonds back at premiums over the hedgies' cost of investment, because if you buy them back all you have to do is pay say 30% of the face value of however many you need to buy, rather than the 50% plus on the ENTIRE lot of bonds.

So what you really have here is a bunch of hedgies playing a game of chicken with the investment banks. The investment banks need the CAC not to be used. They may have to buy out some hedgies to accomplish that.

The larger banks holding Greek debt pretty much have to take the debt writedown because otherwise they are forced to recognize an even larger market loss. The hedgies have no need to take the debt writedown, and they accumulated their positions quite recently in most cases.

Just to make the position even clearer, the ECB announced it would no longer accept Greek bonds as collateral.

Now in the run up to this, quite a few European banks sold off their Greek bonds or even wrote them down on their balance sheets already (the rules say that as long as you are holding them to maturity, you don't have to recognize the loss).

So this is the classic Tide-Speedo moment here. We get to find out who's got what by March 15th.

[dipsydoodle]

10. The aggregate problem

is the risk of contagion which would almost definitely trigger the CDSs. The overall issue is CDSs backing CDSs ad infinitum - apparently nobody has any record of overall value. I've read it could not only take down the entire world banking system but also our concept of money as we know it : available food and water will become the sole means of trade by barter.

btw - on this subject in general I must confess I care somewhat less than a shit what happens.

[Yo_Mama]

11. Greece certainly won't trigger it

There just aren't that many CDS out on Greek debt any more.
http://www.bloomberg.com/news/2012-03-02/greek-swaps-headed-back-to-isda-ruling-committee-credit-markets.html

While Greece’s debt restructuring is the biggest ever, the volume of credit-default swaps on the line has tumbled. The net amount of debt protected is no more than for some companies and represents less than one percent of the nation’s bonds and loans outstanding.

Swaps on Greece (CDNNGRCE) now cover $3.25 billion of debt, down from about $6 billion last year, according to the Depository Trust & Clearing Corp. That compares with a swaps settlement of $5.2 billion on Lehman Brothers Holdings Inc. in 2008.

[Yavin4]

4. Folks, This Is The Crux of the Matter

Greece is being forced into Austerity rather than be allowed to default because by defaulting the CDS would trigger, and it would be the banks on the hook for the debt, which is how it should be.

[Vincardog]

5. Exactly the people are being made to suffer for the Banksters abuses AGAIN

[Yo_Mama]

9. Not really

First, no country can be forced into austerity to avoid a default. And most European banks have already recognized some losses on these Greek bonds. The losses are there for banks whether the CDS kick in or not.

The biggest lever the EU has is that it could kick Greece out of the Euro. But almost everyone already knows that Greece will have to leave the Euro. The funding required from the rest of Europe to prevent that from happening is not going to be paid, because Germany is making it clear it won't ante up.

If Greece does not get the next debt deal, its entire banking system, including its CENTRAL BANK, falls. No one will ship goods to Greece without cash upfront, etc.

http://www.bbc.co.uk/news/business-17110355
Greek banks still hold a big chunk of the debt. They are bankrupt. The reason why Greece is going along with the austerity thing is to protect themselves. When the money being advanced to pay the Greek bondholders is paid to the bondholders, a big chunk of it is being paid to Greek banks.

Up until very recently, Greek banks could get money from the ECB by offering their bonds as collateral for cash. The whole reason for Greece to go down this path was to maintain internal financial solvency.

Edit to add Papademos link:
http://www.forexlive.com/blog/2012/03/02/papademos-expects-significant-debt-swap-participation/