Citi Expects A 76% Haircut On Greek Debt (And 95% If Country Waits 4 Years) For Debt/GDP Ratio Back Down To 60%

Tyler Durden's picture

Yesterday we learned that in borrowing a page right out of 2010, when the Greek government was mounting a full frontal assault against CDS traders everywhere (only for Eurostat to tell us that CDS traders had absolutely no impact on Greek solvency), Greece is once again scapegoating unrelated third parties for its problems. In this particular case Citi London trader Paul Moss, who is being interrogated by Interpol because of a recap email indicating Greece may, gasp, restructure (or, as it isknown in enlightened circles, conduct a "liability management exercise"). Yet when Greece reads the following note by Citi's Stefan Nedialkov, it will most likely issue a cease and desist order in perpetuity against Vikram Pandit's bank. Nedialkov's summary (released one day after Moss' April 20 note): "If a 42% haircut is taken in addition to these measures, we estimate Debt/GDP falls to below 90% in 2013 and below 60% in 2020." The problem is that the market will likely give Greece at most a few months of breathing room in exchange for just a 90% debt/GDP reduction. If truly engaging in a liability exercise of some nature, Greece will likely pursue a permanently viable option. And as Nedialkov indicates, in order to achieve a far more credible 60% debt/GDP ratio, the country would need to take a 76% haircut now, or do nothing for five years, and eliminate a whopping 94% of its debt in 2015. Since the market is already expecting roughly a 50% haircut it remains to be seen just how much further bond prices will plummet, and how much bigger the ultimate impairment on Citi debt, and European banks, Greek pension funds and local bond investors, will ultimately be. One thing is certain: with Greek 2012 debt/GDP expected to peak at 159.4%, the country will restructure, and a a vast swath of insolvent European banks are about to see the tide go out.

Some more color from Citi, which is sure to get the Greek inquisition on the heels of Nedyalkov: "Citigroup said that no country with a debt-to-GDP ratio of
over 150 percent has “ever avoided a default.” Greece’s
austerity measures aren’t achieving the “desired results as
quickly as hoped,” it said."

And some more:

In Figure 11, we illustrate the path of Debt/GDP under some of the above scenarios. Privatisation appears to be the most effective solution on its own, with the Debt/GDP ratio at c.150% in 2020 vs. 175% in the base-case scenario, according to our estimates. Better yet, all options (short of haircut) taken together would bring the ratio down to c.110% in 2020. And if a 42% haircut is taken in addition to these measures, we estimate Debt/GDP falls to below 90% in 2013 and below 60% in 2020.

Most disturbing is Citi's sensitivity on the type of haircut needed in order to bring total debt down even more: Cut 76% of the debt now (to get Debt/GDP to a healthy 60%), or wait until 2014... and impose a 95% haircut.

As for the debtholders, we believe that most have come to the conclusion that some sort of haircut is needed, especially as the austerity measures are not bringing in the desired results as quickly as hoped. At this point, debtholders would rationally want to minimise the amount of haircut taken. In Figure 13, we calculate the “incremental” haircuts debtholders would suffer if they were to wait a certain number of years from today. For example, to bring the Debt/GDP ratio down to 90% in 2011 would mean a 52% haircut, 63% haircut in 2012, 68% in 2013, 70% in 2014 and 70% in 2015. Hence, the marginal haircut (“damage”) from waiting longer diminishes quickly — this is in-line with the expected recovery in the primary government balance and the return of real GDP growth. Therefore, we see two rational strategies for debtholders:

Option 1 — “Act Now”: Insist on restructuring as soon as possible in order to avoid more haircutting in later years. The market (see Figure 14) seems to be voting for “Act Now”, or rather act within the next two to three years. The yield on the 3Y GGB is 21.1% compared to the 30Y yield of 9.6%.

Option 2 — “Pretend and Forget”
: as the “haircut curve” starts to flatten out beyond year 2015, debtholders could close their eyes, help refinance maturing Greek debt, and hope that Greece slowly finds its way out. But this could be a long wait and may require concessions such as extending maturities. In addition, no country with Debt/GDP ratio of more than 150% has ever avoided a default anyways. Why would Greece be different?

As for the analysis of which European banks will suffer the biggest capital income in case of a 50-60% haircut, not surprisingly the list is topped off by France, Germany, Austria and Belgium. Here's to hoping (as the EU is currently doing) that these banks can easily digest the capitaliaztion hit should "assets" have to be written down post a restructuring.

Full Citi report below (just to give Interpol a headstart on their latest witchhunt):

Citi Barber-ians

h/t hugovanderbubble

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cossack55's picture

Barber Bitchezzzz!!!!

thatthingcanfly's picture

Why is it "cool" to regurgitate a random byte from the article and punctuate it with the (misspelled) word for a female dog?

I mean it. I really don't get it. Why is something like this present for EVERY ZH article?

Do these people really not have anything intelligent to add? How do they keep getting the CAPTCHA problem right?

smlbizman's picture

why do people like you care so much......just shut the fuck up and enjoy zh.....


King_of_simpletons's picture

“That’s the tight rope that the Federal Reserve will be walking next week,” he said. “If QE simply ends, that’s a change in policy, that’s going to make many markets roll over and they are going to avoid that. Anything short of QE3 is going to be called higher interest rates.”

QE3 and then QE4 by the end of this year.

traderjoe's picture

Why do you care so much? It's pretty easy to skip over a short comment.

If you really wanna know, IMHO it's a bit of harmless sophmoric humor that provides a little catharsis in a frustrating world and is a minor tradition that binds a community together.

I wasn't around for the very beginning, but think it started with Chumbawamba saying "gold bitchez" in response to some articles, which represented his investment advice and vote of no-confidence in the system - which turned out to be rather foresightful.

But feel free to be a sourpuss about it.

smlbizman's picture

please forgive the off topic question...

do open interest numbers from the comex just represent the amount of short contracts purchased that day?

thank you

traderjoe's picture

I'd have to see exactly what number you were referring to, but typically Open Interest represents the number of outstanding contracts at a particular point in time. For every short position, there must be a corresponding long position, so the number represents either the number of short contracts or the number of longs (since they are equal). In that sense, futures are a zero sum game - for every winner there is a loser. 

Open interest numbers sometimes are listed with a net change for the day, which shows how many contracts were opened or closed that day. 

Votewithabullet's picture

That was me in the rainbow flops and I picked it and flicked it. Sophomoric has 3 "o"s. Fucking awesome.Who says chicks cant add to the conversation.

thatthingcanfly's picture

Why I care is immaterial.

Sophomoric has three "o's."

Catharsis may be realized in other ways that actually express an idea, e.g. the video clip Tyler posted yesterday of the 2-minute rant about the Barry Dunham administration's mismanagement of the economy. Contrast with "__(insert sound byte)__ bitchez!"

Putting up a Christmas Tree with lights on it in December is "tradition." Shooting fireworks on the 4th of July is "tradition." Typing a stupid repetitive comment on a weblog is not "tradition." Words have meanings, folks. While you're at it, look up the word, "community."

By resorting to ad hominem, e.g. "sourpuss," and "biggest dick of the day (see below)," y'all are demonstrating that you know there is no legitimate objection to what I typed above. And as a side-note, indulging in obscenity for its own sake is what conditions Americans (Brits too) into obnoxious Jerks who think it's OK to tour the Sistene Chapel wearing an untucked message T-shirt, baggy cargo shorts, and a pair of flip-flops.

Gordon Freeman's picture

OK, I'll bite--go fuck yourself!  Happy, now?

Trillax's picture

I bet your a blast at parties... yeesh.

redpill's picture

Spam some more ya dumb fuck, with any luck you'll be disappeared soon.

smlbizman's picture

you are exactly correct....from now on we will all live to your standards....please advise us on how to act to reach the level of performance that will make you proud

traderjoe's picture


There's too much irony in your statement to bother responding directly, beyond saying it must be nice up there on your 'high horse'. 

To most all of my fellow ZH'ers - thank you for the education, the sanity in an insane world, my new found appreciation for physical precious metals (real money with no counter-parties and no debt), my greater sense of calm as my preparations proceed, etc.

To those I say:

Thank you, Bitchez.

Community, Bitchez. 

Donate to ZH, Bitchez. 

Silver, Bitchez. 

Gold, Bitchez.

Spread the Word, Bitchez.


thatthingcanfly's picture

Ad hominem, but with good advice imbedded.

Hephasteus's picture

Ad hominen, but with good advice imbedded = gold bitchez!!!

Ahmeexnal's picture

"Sistene Chapel"


Now you ignorant retard, pick up a pencil, and write 2 pagefulls of how it's written correctly:




Obnoxious jerks like you should STFU.

thatthingcanfly's picture

It's hard to take you seriously, but I'll acknowledge the embarrassing typo. "Sistine" it is.

Hephasteus's picture

Well good. When things won't humble themselves they have to be humiliated.

Like how you legitimized one tradition and illegitimized another tradition.

This is called CULTivation of CULTure. And the reason why conspirers charge everybody with conspiracy and cult leaders acuse everybody of being cultists. And why mainstream media is simply the biggest most conforming cult that outpowers other smaller cults through parroting and ego extension.

The reason putting up christmas lights is "legitimate" is because it replaced an established cult with a new cult that overtook the old cults calendar planner. Easter is simply a cult overtaking the previous maypole cult who overtook the previous planting cycle cult. The maypole cult would wrap several ribbons around a pole and it was a kind o of a symbolic representation of dna, It was replaced with a staff and a couple of snakes. Like the old cult was stupid and didn't get something and the new cult added some new information to the belief that was superior.

The sistine chapel thing you mention is simply the cult leaders trying to make some intangible asset such as genious or something out of someone or some group of artists. It's a collective thing they do in order to make the paintings that they own more "valuable". It's constantly going on. I mean seriously you want me to think cambell's soup cans in different colors is art.

It's the bastardization of improvement and growth. Like a pole with ribbons wrapping is improved with a snake wrapping a staff. And art is somehow worthy of respect and getting dressed up for because you want to try to attract it and get it to give you a blow job or something.

This kind of stuff goes on and on and eventually you have it expressed as some crap like oral b toothbrushes. Where sticking the nylon bristles into nylon stick in a differnt angle is scientifically better and they keep doing it over and over until the valuation of the toothbrush goes from 45 cents to 8 dollars and then people get tired of the shit and just want to buy the toothbrush so they can cut it into a shiv and jam it into someones eye and say something like keep foreign objects outside of your brain or it will make you stupid.

And you're angry because gold bitches is a counter culture that cultivates resistance to a present culture that is harming a great fucking deal of people and everyones sick of it. So now that you've discovered the disagreement heiarchy and think you have some kind of great new powerful gun to go shoot your mouth off with. Now you have to discover the cult heiarchy and how it roots and branches to produce suckers and low hanging fruit.

Fuck your sistine chapel.

Refutation - Specifically refutes said chapel with penis.

Now don't you just feel like a jackass with a farming for dummies manual.

So here. Enjoy some cult culture and counter culture humor.

DeweyLeon's picture

lol, you're like the Les Nesman of trolls.

thatthingcanfly's picture

Spastica Rex is right... for the wrong reason, of course; but one can't have his expectations set too high, can he?


UninterestedObserver's picture

"And as a side-note, indulging in obscenity for its own sake is what conditions Americans (Brits too) into obnoxious Jerks who think it's OK to tour the Sistene Chapel wearing an untucked message T-shirt, baggy cargo shorts, and a pair of flip-flops."

You admit that it "offends you" because of your beliefs regarding obscenity. Others here call you a "dickhead" because they believe anyone with your belief is a "dickhead".

thatthingcanfly's picture

You have read without understanding, then mischaracterized what I said, then demonstrated your inability to construct a valid analogy. Impressive.

UninterestedObserver's picture

Wrong and you're still a dickhead so fuck off and buy gold bitch(ez)

Calmyourself's picture

Frankly, what is more immaterial is your sophmoronic (sp) cultural commentary, we have bigger things to worry about. So once your done with your spell check,your dictionary diktats, and decorum lessons say something relevant about economics or the massive ponzi scheme we are embroiled in or go away.

praps's picture

Preferably alliterative and with two double syllables. It's a form or poetry really.

hardcleareye's picture

Perhaps this is the verbalization of a young insecure boy that is unsure of his species preferences (nothing like porkin the pooch, or so I am told, not being of that gender)?  Some men never grow up.... <lol and rolls eyes>

Seriously, it is difficult to "add tone" and "inflection"  in a blog and this word is intended to convey approval, astonishment, "you got it right" "this is really cool man"..etc.., this expression is NOT used with the intent to be a "deogatory comment aimed at women". 

Look on the bright side, we could be in Australia, were no offense would be intended if someone called you a "funny cunt",

 "when used with a positive qualifier (good, funny, clever, etc.) in countries such as Britain, New Zealand and Australia, it conveys a positive sense of the object or person referred to.[6]"

Human communications are inherently flawed... and life is short...

malek's picture

Ad hominem bitchez!  (That's my first "bitchez" post ever, but that had to be said.)

imaginalis's picture

About time the bondholders got some Greek

falak pema's picture

The Barber of Seville is already occupied full time with Hidalgos of Santander Espagna. Those of Lisbonna have a hard boner working overtime on Socrates and his Pintos. That only leaves the Turks to send their Yatagan merchants to Athens to shave their Greek friends down to their dry nuts dipped in olive oil. What a moussaka, houmous and dolmates pot pourri this will be!

Tail Dogging The Wag's picture

"Investors need to diversify, they need to own some real estate, they need to own some farmland, they need to own some equities, some cash, and some precious metals..."   Marc Faber —Investment analyst

Got real estate and farmland outside your home country yet?

banksouttacontrol's picture

Beer Bitchezzzz!!!! and gold, silver, hogbellies and Bitches Bitchezzz!!!

traderjoe's picture

Leo, what should I do now with those Greek bonds you told me to buy? /s

Popo's picture

Don't worry,  I'm sure that little ol' 95% haircut is priced in to the market already.   

Gordon Freeman's picture

Not just priced in--it's incredibly bullish, doncha know?  David Tepper told me so...