Le Figaro Reports French Banks Propose "Voluntary" 30 Year Debt Rollover, However With DOAing 30%-50% Implied Haircut

Tyler Durden's picture

The latest episode in the "we'll make it up as we go along" rescue of the Euro comes from France where as Le Figaro reports, a working group of French banks led by BNP Paribas has proposed, and been agreed to by the French Treasury, that maturing debt would be rolled over into a a 30 year maturity piece, accounting for 50% of the total existing debt, and another 20% would go into a "zero coupon" fund focused on high quality stocks. Also according to Le Figaro, borrowings under the proposed scheme would pay an interest equivalent to what Greek "public" interest is plus a variable interest rate "likely to be linked to an economic Greek indicator such as GDP" (which being negative for years will likely means lower interest than prevailing).

Of course the problem with this proposal for anyone who can do simple math, is that the implied haircut for the Greek Treasury would be between 30% and 50%, depending on how one accounts for the treatment of the sinking stock market ponzi fund. But certainly at least 30% of the rolling over debt would not come back to the issuing authority. And since French banks are unaware of simple rating agency methodology, any debt exchange, whether called "voluntary" or otherwise, which involves a notional haircut of any variety is an immediate event of default. As a reminder, avoiding a rating agency EOD, far more than an ISDA CDS trigger determination, is what this whole charade is all about. Since an EOD would mean Greek debt becomes ineligible in any capacity for ECB collateralization, and since there are likely hundreds of billions in Greek sovereign debt pledged to the ECB either directly, or indirectly, through Greek banks, this funding avenue closure would commence the waterfall that triggers the liquidity cascade that culminate with every single European money market fund breaking the buck as has been discussed previously.

As such, this latest proposal is also Dead On Arrival.

Elsewhere, Germany was making more noise, claiming the "voluntary" bailout would be agreed upon by everyone "or else" and that Greece would be doing the worst thing possible if it were to not accept the generous terms of the second Greek bailout which is now bigger than the first one.

From Reuters:

Greece accepted a package of 110 billion euros of EU/IMF loans in May 2010 but now needs a second bailout of a similar size to meet its financial obligations until the end of 2014, when it hopes to return to capital markets for funding.

Euro zone finance ministers have said they will define by early July "the main parameters" of a new international bailout plan.

German Finance Minister Wolfgang Schaeuble told Bild am Sonntag he expected private sector creditors to participate willingly in a second bailout package, underlining also that Greece would not receive the next aid tranche if the government's austerity plans were vetoed.

The Greek parliament is due to vote on Wednesday and Thursday on measures that include 6.5 billion euros of extra austerity steps for this year and savings of 22 billion euros for 2012-2015 to cut deficits and keep qualifying for EU/IMF aid.

What Schaeuble forgot to add is that the only real loser in this deal would be Germany, as a Greek "No" vote would beging the process of EUR dissolution, also meaning the DEM would make its long overdue comeback, which in turn would force Germany exports to surge in price courtesy of a revaluation of the German currency, somewhere 100% higher than where its implied value is now, and in the process destroy the German economy, which one may say employs quite a bit of the same mercantilist policies as used by that other exporter, China.

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King_of_simpletons's picture

Bad news predicted for second half '11.



GeneMarchbanks's picture

Jan is the most polite guy employed at the Squid. He's essentially saying "More QE, please" At its arrival he'll publish a paper entitled "Growth on the Horizon" which will be a nice wink to the Bernank. Also potentially, an HJ scandal may be involved. Nil admirari- proper wisdom for life.

snowball777's picture

A self-fellating ouroboros squid...how lovely.

Ahmeexnal's picture

The franco-german banking cartel is about to strike again. With the NYSE now under control of Deutsche Borse and the algo testing phase over, we are in for a real SHTF scenario, courtesy of the idiots at Clearstream:



snowball777's picture

Isn't that what happens when you don't get enough vitamins?


max2205's picture

Sure more QE which will flow to the ECB......

Zero Govt's picture

the ECB are parched and need someones liquidity!

...brilliant job by Trichet though and sorry to see him leave office at the peak of the ECB's and EU's bankrupt shell game for senile Eurocrat ideologists

ISEEIT's picture

Surprised that they haven't proposed their great-great granddaughters hymens? These goofs are getting VERY dangerous in their implicit acknowledgement of desperation that goes so deep as to open the door to ANYTHING.

Think crack whore.

Or perhaps better yet think Pimp/dealer.

These fucks know the game is over.

The pivot point is public reaction to the naked emperor.


knukles's picture

Their great grandaughter's hymens are the collateral. 

oldman's picture

The public has already accepted default. The public's reaction is probably the same as it was to taxing the american public for the losses incurred in the 'sub-prime crisis': another non-event because there is nothing anyone will DO about it. The default is already priced into the markets because it is the default of the public at large for not having any capacity to affect a different outcome. WE have defaulted.

Maybe this is wrong-thinking on my part----we will find out some day.


oldman's picture

The public has already accepted default. The public's reaction is probably the same as it was to taxing the american public for the losses incurred in the 'sub-prime crisis': another non-event because there is nothing anyone will DO about it. The default is already priced into the markets because it is the default of the public at large for not having any capacity to affect a different outcome. WE have defaulted.

Maybe this is wrong-thinking on my part----we will find out some day.


ISEEIT's picture

Who is the Mother#&ing junker? I seriously want to know. If I have learned anything from ZH it would be that you MUST have the courage to reveal yourself. DO NOT just 'pussy' junk!

Show up and fight bitch.

(and as an asside, if it is you P.K, I wouldn't trade my life in 'poverty' for your elitist hell EVER. I know about delayed gratification. Mine will not be smuggness.) Love it while you got Ponzi bitch.

Hang 'em high.

ratso's picture

The fact that these type of proposals are being floated says that the Greek Bond question is far from settled.  Individual Euro countries are becoming less Euro centric and more nationalistic.  This pendulum has just begun to swing away from the Euro.  There is also a continuing recalculation about what the haircut consequences will be. In the mean time, all the banks in question are continuing to improve their balance sheets in preparation for the worst case scenario.  Nothing is clear about how this will resolve over the next 12 months regardless of the reassurances  the ECB, the IMF and the various Euro finance minsters give.

jeff montanye's picture

the faux precision of these financial proposals as the underlying securities continue to slide toward the abyss reminds me of the inch by inch revelation of the catastrophe at fukushima (what a name) with the obfuscating elaborate plans for amelioration now come to naught. 

malikai's picture

Hmm.. To haircut or to haircut. Such tough choices they face.

etrader's picture

Seems coordinated from last weeks meeting(s).

The UK  banks will be urged by the Treasury to take multimillion pound losses as part of Europe-wide plans to prevent a catastrophic meltdown of the Greek financial system


malikai's picture

Another worry is that Britain's banks and hedge funds have written multibillion-pound insurance contracts – credit default swaps – that would be triggered if Greece defaults.

Osbourne may be able to tell the banks to take it in the pooper, maybe. But that won't stop the liquidation the hedge funds will be forced into.

Cheeky Bastard's picture

I'll ask here, since I didn't get an answer anywhere else; what are the chances of Paulson (and other like BH, RenTech etc etc) being synthetically long periphery?

Landrew's picture

Excellent thought CB! That might be one big piece of the puzzle?

Not much else makes any sense in this mess. I think only an insider 

would know before any action?


Cheeky Bastard's picture

I mean were the likes of Paulson and Brevan Howard (just to name the two most likely candidates) underwriting GRE/periphery CDS into the weakness this whole time? Paulson said in a statement he has being playing GRE since Q1 of '10. My question is; what was the trade; synthetic long with swaption hedges on SOVX/bespoke basket, or just covering on the dips? It would explain some of that -20% ytd performance. The collateral calls alone he would've received would account for 25% of that negative performance. 

Tyler Durden's picture

As ZH has pointed out repeatedly in the past when debunking popular idiocy on the CDS boogeyman, a short CDS position, courtesy of the CTD basis, would be net cash positive upon settlement.

That said, the last thing on John "damage control" Paulson's mind is to get involved in more PR campaigns involving sovereign CDS.

Zero Govt's picture

the time for PR Campaigns (sugar coating turds) is near end. I think we can put June 2011 down as the month everyone wised up and faced the turd (toxic debt) full in the face. Probably why Mr Bright Eyes, Trichet, is exiting stage left as his sugary positive spin no longer washes with anyone..

Now on stage, Mr Ugly Reality

Atomizer's picture

Earlier this week, the MSM featured an exclusive story about the trust fund status. All kidding aside.

Statement of Robert D. Reischauer -- June 22, 2011


Statement of Robert D. Reischauer -- June 3, 2011


So where did the money go? The fiduciary responsibilty will be held to the people who signed the document and allowed the trust to be gambled away.

malikai's picture

"fiduciary responsibility".. LOL

Responsibility is for the plebs.

Atomizer's picture

Funny as shit until the plebs figure it out. How are you going to cover for the invested government controlled monies that's not there?

**Inserts laugh track**

You fucked up, not I.

malikai's picture

In my own observation, the western plebs seem contempt with their TVs, GMO food, and of course Cialis.

The other plebs(don't count) are contempt trying to feed themselves.

This said despite many a megaphone telling the plebs what's really going on. I want to believe they will wake up, but as long as the boil is slow, they won't.

Atomizer's picture

Point taken. We both reside in the same camp of thinking.

malikai's picture

We do have one thing working for us: The more shit they pile into this boat, the harder she is to steer. But the longer she takes to sink, the worse the losses will be. I really fear for what my country will become when we see this through. Needless to say, protection of oneself from the eventualities is well in order.

zorba THE GREEK's picture

 Roll Greek debt over for thirty years.    Maybe they should put the debt in a time capsule for

 some future Europeans to dig up 400 or 500 years from now.  Wouldn't that be a surprise:

 " This note is due upon discovery with compound interest"  

snowball777's picture

Don't worry, they'll have Juncker's head in a jar to arrange another bailout then too.

ISEEIT's picture

That's actually pretty clever. Maybe Christine will propose just such an idea!

StrawberryBlonde's picture

My friend mentioned the other day that her family had Greek takeaway for dinner...this has a new meaning to me now!

Zero Govt's picture

that's what the banksters also want, a 'Greek take-away' (asset strip a nation) 

YesMaybe's picture

I do find it funny that mercantilism is looked upon in mainstream economics as mere foolishness by those pre-Smith morans.   When, in reality, it's just exporting unemploymet, the right to do which is eagerly and increasingly fought over.  We better find some Martians soon so we can dump our products onto them.

richard in norway's picture

just in time


i was getting withdrawal symptoms, from lack of crazy euro news

granolageek's picture

I don't understand how German exports are holding up now. I haven't shopped for a car for 9 years, but for everything I have shopped for since 2006 I have always found either something just as good for 75% of the money, or something good enough for half the price or less. I still have a Stihl chainsaw and a couple bottles of gewurtztraminer, but I think that's it.

richard in norway's picture

at the moment i will only buy dirt cheap(china) or top quality(German) i don't know but i guess a lot of folks are making the same choices. either a  throwaway item or a built to last and nothing in between. but i wonder if the Germans are making the same mistake that Britain made a hundred years ago, are they selling retooling to the Chinese

koperniuk666's picture

Richard - You have hit the nail on the head. Theres the crap we buy and its made by machines. These machines are made by bigger machines and its these  biggermachines (and the ones that make these machines, that Germany makes and sells to, amongst others, the chinks.

Cole Younger's picture

Greece does not have the exporting capacity or ability to make unique things that the world needs. They are a consumer service nation. There GDP is limited along with economic growth. Regardless if they come up with a plan to kick things down the road by raising taxes and cutting services, they are too deep in debt. Interest on the debt alone will consume most if not all tax hikes and cuts in services. Throwing more money at the problem will not fix it. They will default. If this creates contagion in Europe and the U.S., so be it. The madness has to stop sometime. Investing has risk. If investors get wiped out, oh well. If currencies collapse, oh well. Let the cards fall where they may. 

Solarman's picture

Exactly, but logic is not being employed. The game is to figure out which option hurts the Germans the least.

YesMaybe's picture

Also, could someone clear up for me this simple math for 30%-50% haircut?  The only thing I can think of is for every 100 owed they get a new bond for 50 and 20-worth of stock.  But I figured I'm probably misunderstanding it, since this way the banks have to take a large immediate writedown on their books, so why would BNP propose such a scheme?


Thanks in advance!

topcallingtroll's picture

With this type of restructuring the haircut is not on principle.

If you have a greek two year bond that is now trading at a twenty percent discount to the purchase price, this plan woyld roll it over into a thirty year bond with an interest rate of five percent more or less.

You get to pretend the principle is unimpaired on your bank capital requirements, as long as you " plan" to hold to maturity.

The haircut is in the future returns of a thirty year, not the principle.

HpDeskjet's picture

Good explanation, but this is just part 1 of the "solution" (=extend and pretend for another 6-12 months). Part 2: Rating agencies have to say whether this is a credit event... From an investors point of view, changing a 2y bond to a 30y bond = a taking a haircut.

Highrev's picture

No credit event. Greece issue "solved". No need for more QE here (and probably not anywhere else in Europe either with the China backstop). And the ratings agencies will continue to make themselves look like clowns.

All eyes will now turn to the odd man out. You do know who the odd man out is, right? The patsy?