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In Bankrupt Argentina CDS Auction, Barclays Buys Whatever JPM Has To Sell; Citi Goes For The Hail Mary

Tyler Durden's picture




 

It has been a while since Creditex ran a CDS settlement auction of any note for two reasons: CDS no longer is a credible or legitimate method to hedge against default risk (see Greece, Banco Espirito Santo), thus making the stated purpose of CDS irrelevant, and when the default carries with it systematic risk ISDA will simply screw over CDS-holders and change terms whenever it sees fit following a few politically-connected phone calls, at which point good luck collecting on your "insurance." Which is why the just concluded Argentina CDS settlement auction following its bankruptcy last month, was a welcome reminder of what markets looked like in the BC (Before Central-planning) era.

The headline results were as expected: with the restructured bonds trading modestly over 40 cents, the final price on the CDS settlement was 39.5, with most dealers submitted markets between 38 on the bid side and 42 on the ask.

 

What was more interesting is who the biggest buyers and sellers were.

First the buyers: according to Markit, there were a total of $113 million buy physical requests, offset by $17 million in sell request, leaving a total limit order book of $96 million. Curiously, of this the vast majority was Barclays, which had just under $100 million in bond bids it needed filled. As a reminder, since the dealers intermediate end clients, it is impossible to determine if it was Barclays (i.e., its prop desk) itself that needed the collateral, or its clients. In any event, Barclays wanted it some Argentina bonds...

... and it got them courtesy entirely of JPMorgan. As the table below shows, in the reverse dutch auction, the limit orderbook was filled entirely by JPM which sold 1.9 million at 39.25 and 96.03 million at the clearing price of 39.50.  In other words the entire auction was basically Barclays buying whatever bonds JPM had to sell as a result of residual non-offsetting CDS exposure.

Finally, and as always happens at these reverse dutch auctions, there is always someone who is hoping the counterparties are either idiots, or super squeezed, and will buy bonds at any price. That someone this time was Citi, which would have been delighted to sell 80 million in bonds at a price of 55, with 50 million at 99 cents! Of course, had anyone filled that offer, Citi would have made an automatic 50+ cents per bond with no risk.

Sadly for Citi, there were i) no idiots and ii) no supersqueezed countparties in this auction, which is why JPM, with its far more realistic clearing offer of 39.50 walked away with the cash, and Barclays got all of its bonds. Better luck next time Citi.

 

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Wed, 09/03/2014 - 14:47 | 5176643 centerline
centerline's picture

Bankers and politians not making good on bets that go the wrong way? 

I am shocked.  Just shocked.

lol.

Wed, 09/03/2014 - 15:17 | 5176752 Pool Shark
Pool Shark's picture

 

 

Still surprised anybody buys CDS; what good does it do if they simply keep re-defining "default" and never payout.

As for a 'default' which poses systemic risk; that's the same reason I will never purchase Earthquake Insurance on a residential structure in California: Most earthquakes won't do enough damage to reach the 25% deductible, and any earthquake big enough to do more damage will destroy so many homes, the re-insurers will be bankrupt and unable to pay all the claims.

What's the point of playing roulette when the casino is bankrupt?...

 

Wed, 09/03/2014 - 19:38 | 5177693 eatthebanksters
eatthebanksters's picture

Nothing new here...CDS became a joke when Greece 'technically did not default'. If there is no money to pay and your sittingat the bottom of the pyramid of cards, they'll just tell you to shut the fuck up and walk away.  There are no fucking laws...the rule is real simple:  dog eats fucking dog.  Remember that.

Wed, 09/03/2014 - 14:48 | 5176651 Groundhog Day
Groundhog Day's picture

with all the cds premiums they have written over the decades, they are still way ahead

Wed, 09/03/2014 - 14:58 | 5176698 centerline
centerline's picture

Until it all starts to unwind.  The banking cartel has connected virtually the entire globe in debt.  Circular counterparty exposure per se.  They can contain the damage on an Argentina scale.  Not on an EU scale.

Wed, 09/03/2014 - 15:20 | 5176776 Pool Shark
Pool Shark's picture

 

 

Which is why CDS is such a great scam.

If there really is a 'systemic credit event' they'll never have to pay out.

[You can't bleed a turnip...]

 Maybe it's time for me to roll-out my new "End of the World" insurance. For a 'reasonable' premium, I'll pay trillions to indemnify any losses when the world ends...

 

Wed, 09/03/2014 - 15:22 | 5176791 centerline
centerline's picture

+1 PS.  They know it too.

Wed, 09/03/2014 - 19:35 | 5177689 logicalman
logicalman's picture

Go for it.

Goldman would recommend it to the muppets....

Ride it up and get out fast!

Wed, 09/03/2014 - 19:40 | 5177696 eatthebanksters
eatthebanksters's picture

It's high premium high risk shit so these bankers can pay themselves bundles of cash.  Well they may never live to spend it...

Wed, 09/03/2014 - 15:00 | 5176702 ebworthen
ebworthen's picture

So Barclays is the next bank to be bailed out via the public treasury?

Wed, 09/03/2014 - 14:59 | 5176706 mrdenis
mrdenis's picture

A little off topic ..


Goldman Sachs Off the Hook for Ex-Employee's Legal Bill

The U.S. Court of Appeals for the Third Circuit has reversed an order requiring Goldman Sachs & Co., to pay $1.7 million in legal fees for the defense of a former company vice president who faced criminal charges for downloading program code relating to the company's high-speed trading platforms and sharing it with another company. READ MORE »

Wed, 09/03/2014 - 15:08 | 5176734 DOT
DOT's picture

Thanks, Tyler.

This is my news of the day.  At .39 it seems that every nation should just say, "Fuck-You! We ain't paying."

On the equity side  the State controlled Oil Co. YPF is up!

Wed, 09/03/2014 - 15:08 | 5176738 cougar_w
cougar_w's picture

I recall reading somewhere that banks were making serious -- er, bank --  on CDS fees. Sounds like another part of their global Ponzi scheme is starting to unravel and while the rest of us are glad to hear that $600T notional of CDS overhang are set to evaporate, the banks must be crying in their beers.

That reminds me, I got in early and nuked GS via their insurance portfolio:

http://fedtoatiger.blogspot.com/2014/05/goldman-sachs-is-fed-to-tiger.html

Damned clever of me, I have to say.

Wed, 09/03/2014 - 16:03 | 5176981 cro_maat
cro_maat's picture

Not a bad return for $68. Well played sir.

I am afraid that the tiger excrement will be toxic though. However, I am sure the biowarfare labs will be interested.

Wed, 09/03/2014 - 15:45 | 5176882 q99x2
q99x2's picture

The too big to fail dance like fish caught in a malestrom. They are doomed M'Fers.

Wed, 09/03/2014 - 16:08 | 5176958 Snake
Snake's picture

Bankrupt Argentina?? Perceptions, perceptions, perceptions.  Remember Tylers, today's markets are moved by (the dissemination of) narratives and perceptions.  No?  Question is: how are such narratives and perceptions disseminated?  Also, who's interests are involved in said operations? 

 

 

Wed, 09/03/2014 - 16:04 | 5176983 pakled
pakled's picture

Nice breakdown and subsequent characterization of this event ZH. +1

Wed, 09/03/2014 - 18:36 | 5177460 steelhead23
steelhead23's picture

Very good.  Indeed, Argentina has, due to the payments system being jiggered by Judge Griesa, defaulted on a portion of its debt.  It is not bankrupt and clearly intends to pay all bondholders who accepted the haircut following the nation's prior default.  Detroit, Michigan is bankrupt, its factories shuttered, its inhabitants homeless.  Argentina - not so much.  One wonders what the CDS auction for Detroit bonds would look like.

Oops this comment is for Snake.

Wed, 09/03/2014 - 17:17 | 5177260 Watson
Watson's picture

What I find a little surprising is the sizes - they look very small.
Do we have data on the original sizes of the issues setlled under the auction?

Watson

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