As First Greek CDS "Anstalt" Appears, A Question Emerges: Did Banks Not Square Off Margins?

Tyler Durden's picture

The irony is not lost on us that Bloomberg is reporting that KA Finanz, an Austrian bad-bank supported by the Austrian government, faces as much as a €1 billion need for funding to cover its exposures to Greek CDS (coughcreditanstaltcough). In a statement this morning, which we noted in a tweet, the bank noted "activation of the CDS with an assumed loss ratio of about 80% would mean an additional provisioning charge of EUR 423.6 million". KA Finanz's total amount of Greek CDS exposure is around EUR1bn. What is shocking and should be of great concern is that we have been led to believe that very little net cash will change hands on the basis of the $3.2bn net aggregate market exposure. This was based on the now false premise that variation margin was maintained and transferred throughout the process (as we note below from recent IMF filings). What appears to have happened is that dealer to dealer variation margin has been, let's say, less rigorous as perhaps all collateral was netted up across all exposures (or simply ignored on the basis of government backstops). The far bigger question then is: are banks simply marking ALL sovereign CDS at par, and not paying off cash to other dealers? Remember it only takes one counterparty in the chain to turn net into gross and quality collateral seems tied up a little right now at the ECB (or with margin calls).

And then this from KA Finanz' 2011 Interim Statement:

Supplementary to the measures already taken by the European Union and the IMF (International Monetary Fund), the measures now initiated are expected to permit a sustainable stabilisation of the Greek budgetary situation. Moreover, statements made by the International Swaps and Derivatives Association (ISDA) suggest that the measures described above will not trigger a credit event of credit default swap (CDS) portfolios. In view of these circumstances and given the measures already taken and now extended by the European Union, KF does not expect – from today’s point of view – a default of loans and advances to the Republic of Greece.


KF’s total direct exposure to the Greek state amounts to EUR 818.6 million; moreover, the bank holds government-guaranteed bonds of EUR 164.6 million and government bonds of EUR 636.2 million. The issue of programme participation only arises for securities maturing by 2020. As of 30 June 2011, this portfolio represents a book value of EUR 311.5 million, of which EUR 303.1 million is, however, locked in until maturity in repo-type TRS (total return swap) funding positions. Under civil law, these positions have been sold to third parties against inflow of liquidity; the underlying risk remains with KF through a CDS structure.

So it does. And surprise, Surprise: so until the bank assumed there would be no CDS, it decided not to daily variation margin its exposure. And only now it has to? But, but, ISDA said "what was decided today was anticipated and had been decided for quite a while." Did KA not get the memo to pay its counteparties when it had to at the end of trading every single day?

Surely KA is all alone in flagrantly circumventing the primary requirement in posting cash shortfall margin.


Oh, and congratulations Austrian taxpayers, you are the latest ones on the hook to pay US hedge funds and banks for the privilege of Greece defaulting.


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Mark Carney's picture

Something smells fishy.......

Vampyroteuthis infernalis's picture

The arrogance of banksters astonishes me. It seems like anyone who is indoctrinated and gets a "position" overlooks many of the obvious things as long as others suffer. That is until the day they bring their own house down.

hedgeless_horseman's picture



The far bigger question then is: are banks simply marking ALL sovereign CDS at par, and not paying off cash to other dealers?

So, are we good?

Yeah, we're good.

Great, see you and Randi at Skip's tomorrow night.  I'm bringing a case of Cristal.

GeneMarchbanks's picture

That's fine, but are only banks on the inside holding?

brewing's picture

nothing to see here kid, move along...

JPM Hater001's picture

We really shouldnt piss off Austria here.  It ended very badly last time.

Manthong's picture

Mamma Thong always said "The devil is in the details".

Ahmeexnal's picture

  • 4:07p ISDA: most Greek CDS exposure is collateralized
  • Greece will hand over gold reserves
  • resurger's picture

    That was the entire purpose of this whole Farce


    trav7777's picture

    all the doomers with their canned hams and silver bars hiding under their porches must be sorely disappointed that the world hasn't ended.  Everything is still running

    UP Forester's picture

    I don't have a porch, and I don't hide or eat canned ham.

    Remember, trav, just because the water's moving faster and there's a sound that's getting louder, it doesn't mean there's Victoria Falls ahead.

    It might be just Niagra.

    jeff montanye's picture

    or the iguazu falls.

    wonder if some of the truly "bad banks" will try a corzine to pay the, unexpected, cds that are net until they're really gross.

    MsCreant's picture

    Beautiful. I googled images and it was a real treat.

    MrSteve's picture

    KA Finanz as in KreditAnstalt and KA-BOOM Finanz. In the 1930s, all the countries east of the Rhine River defaulted on their bonds. It was called the Rhine Syndrome. Who knows what the next global depression will cause the sovereign bond defaults to be called? The Grecian Formula?

    jackbooted gauleiter's picture

    Denmark, Sweden... they're east of the Rhein... did they default?

    Dr. Kenneth Noisewater's picture

    Default, dear Brutus, lies not in our stars, but in ourselves..

    resurger's picture

    March 9th marks new events and stuff yet to come

    UP Forester's picture

    Can't wait for the Ides....

    Cadavre's picture

    The far far triple far bigger question is "What ECB collateral?"

    Remember it only takes one counterparty in the chain to turn net into gross and quality collateral seems tied up a little right now at the ECB.

    The ECB's only collateral, and correct if wrong, in this whole pig n a poke, like the wad of Greek bonds laying under a street lamp bound to a string that leads into the shadow .., is the full faith and credit of the ECB. The ECB is making loans to member banks so they can buy Greek bonds. The only thing underlying the loans made to ECB member banks is the word "Guaranteed by the ECB" stamped on the confirms.

    Ya can't buy a Big Mac Double Fry with an ECB promissory note - so has the benchmark for "quality collateral" been redefined to include an empty cash drawer with only an ECB Guaranteed IOU?

    The geeky vixen mc-ing RT's Capital Accounts just cited ZH. (btw - RT is included with a Dish Network subscription - no mas Freedom Watch and the obviousness of the Rat Rattigans pandered news speak leaves the boob tube spectrum pretty darn lean these days.

    jeff montanye's picture

    these times will sorely test faith, full and less so.  

    as for credit, it's getting to be a matter faith too, really.

    Cadavre's picture

    Gold traded in a 40$ range today. As of post, the 24/Hr spot just ticked it's highest. It's low, of course, was around this morning's FTSE close, and, despite a strong USD demand relative the EUR for most of Friday's market.

    The manipulation and market rigging by central bank printing is in plain view - they're not even making an attempt to hide it.

    Change with extreme prejudice is the only option for change the MIB will accept - they ain't gonna go easy. They think themselves invincible.

    It would be cool if a national boycott, for example, cable TV would stir their survival instincts. General Strike harder to do. Anything nonviolent to shutdown the flows would work. How to get the 99% percent to go along with it is the problem.



    StychoKiller's picture

    Tell'em American Idol was moved to UHF channel 84...

    Future Tense's picture

    Just wait for the $100 trillion in bailouts needed to cover the rest of Europe's CDS.  Only political will is going to bring this house down.

    GeorgeHayduke's picture

    " It seems like anyone who is indoctrinated and gets a "position" overlooks many of the obvious things as long as others suffer. That is until the day they bring their own house down."

    This method you describe has been the standard operating procedure for much of the "economy" for years now. No wonder it's falling apart.

    Eisenhorn's picture

    "Spain says there has been some misunderstanding with Brussels on budget

    - expects statement on Monday from Euro-Area finance ministers"



    LOL...they didn't even wait for the corpse to get cold over in the Aegean....


    Buck Johnson's picture

    I tootally didn't know about this one, so if they werent paying the daily then almost all the rest may have also.

    GenX Investor's picture

    That's my fish sandwich for Lent.  Sorry!

    POpatriot's picture

    So who made the AIG CDS mistake...?

    tgatliff's picture

    No mistake.   Once the bank cartel realized that AIG was being protected by the FED, it became a feeding frenzy.  Notice that it is the Austrian taxpayer who is footing the bill for the CDS exposure and not the bank cartel.   I mean if Goldman had to payout, I am quite sure that the Geithner would be on his way to congress right now talkinga about a potential Mad Max outcome.  

    The Paucity of Hope's picture

    I don"t think he has to. Aren't all the banks derivatives backed up by the assets of their insured depositors' accounts?

    Withdrawn Sanction's picture

    The old Bank of American switcheroo?  Sure, what could possibly go wrong there?  

    Let's see, there's $200T plus in derivatives at the 5 biggest/incestuous US banks against $9.8T in total bank dep at ALL 7,000+ US banks.  Even on a NET basis, that turd wont flush even if they stole every last dime of depositor money....which they just might.  Jig's up boyz.

    Ahmeexnal's picture

    Something smells fishy.......

    *cough* vagisil *cough*

    The trend is your friend's picture

    Even the Algo's haven't been programed to make heads or tails out of this info.  The market is like a deer in headlights 

    JPM Hater001's picture

    And this my going to be a very long weekend.

    SheepDog-One's picture

    Remember 2009 was all 'high drama over the weekends' where the weeks emergencies got done behind locked doors when the markets were closed? Back to that shit again I guess.

    JPM Hater001's picture

    I wasn't awake yet.  I think I was celebrating the 28th anniversary of losing my...well, you know.

    jackbooted gauleiter's picture

    Wallet? You'll be losing more than that this weekend.

    French Frog's picture

    Doubt it; sorry to say but so far it feels like the non-event of the week/month/2012....

    SheepDog-One's picture

    SURE what we were told was 'the worst possible scenario' Greek default goes down, and suddenly never was a big deal at all, not even a mosquito bite....ok then media can fuck off with all their news from here on out then if everything is irrelevant.

    battle axe's picture

    I guarantee one of the major US Banks (B of A/Citi I am talking to you) Screwed the pooch on this. I will bet money that they are on the wrong side of this trade.

    stirners_ghost's picture

    You may be right. I took a flyer on FAZ just in case; it seems pretty cheap at the moment, all things considered.

    Nobody For President's picture

    Yeah, I did as well. The uncertainty itself might be enough to push it upwards a bit to sneak a stop in and wait for the bill to become due. Some of those bankers may even have to work this weekend...

    tgatliff's picture

    I think you made a couple grammatical errors on your post... I can fix it, though... "Screwed the tax payer on this.  I will bet money that taxpayers are on the wrong side of this trade."

    Fixed... And yes, I agree with you..


    Withdrawn Sanction's picture

    What will they do now, since there is no Gold?

    They could offer to send them the Statue of Liberty.  It's not gold, but it is copper...and hell, we're not using it anymore.  

    LongSoupLine's picture

    Cue the next Nigel Farage explosion video...