Market Already Pricing In Greek 25% NPV 'Haircut'

Tyler Durden's picture

As we just reported, Reuters has broken news that Greece is starting to grow a pair and negotiate directly with debtholders on a much larger haircut on its debt than Dallara's IIF is hoping for. This is significantly bad news in terms of both the powers-that-be losing control, banks capital raising and writedowns, CDS triggers, and EUR stress. Given that GGBs are generally trading at 25% of Par out past 1.5 years, the market had begun to discount this already but it is clear that the game of chicken just escalated and the fact that European financial credit closed only marginally off its lows while stocks soared into the green once again tells us where professionals are trading. US financials are losing gains now and ES is pulling back to VWAP as EUR sells off.

Peter Tchir, of TF Market Advisors, offers some more color on this next leg down in the SANFU that is Europe.

The good news is that the head of the IIF probably had his 15 minutes of fame and it can go back to being a cushy lobbying group rather than pretending it has real influence over the banks.

The bad news is generally bad though.  This goes back to being a very piecemeal and bank by bank, country by country situation.

With Greece being directly involved it increases the risk of a Repudiation/Moratorium Event for CDS.  That merely extends the maturity of existing CDS trades, but should scare the heck out of anyone who is long Greek risk to Dec. 20th.  The threat of not paying may be enough to trigger that.

While the IIF or EU was handling the negotiations, it was hard to trigger a repudiation/Moratorium Event.  As a short term CDS seller, I would be horrified by this development (though you should have expected it).  If they say anything that triggers, then CDS maturity is extended.  You would still need a Failure to Pay or some other Credit Event to trigger settlement.

The Failure to Pay Credit Event is also much higher.  This will be like herding cats.  Getting banks to agree to something "voluntary" was already hard, this will make it virtually impossible.  Greece will find that every bank tries to wiggle out of the risk.  That the ones with paper maturing in the near term will delay the most in hopes of getting paid out at par.  I think risk of a Credit Event has increased, and with Repudiation/Moratorium on the table, the cost of Dec. 2011 and March 2012 CDS should have increased a lot.

This is not good for bank share prices.  We saw have seen how bank liquidity has dried up even more after MF Global went under, and I have to admit I didn't think it would impact the market as much as it did.  I think fears of derivative losses cascading through the system are overblown, but I definitely have likely underestimated both the risk of that and the immediate hit to liquidity from those fears.  This is another clear risk-off change in European policies, and a complete embarrassment to Merkozy (though I could never understand why they felt the IIF could deliver).

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mike2756's picture

Why stop there? Why not go for 100%?

trav7777's picture

and wtf, they are negotiating a euro price...this was not at all how it was supposed to go, but wth right?

I guess we have our own muni situation here and Feds who bought State debt

BaBaBouy's picture

They be lucky to get 5 Cents on the Euro, and that in Fresh New Drachmas ...

Ahmeexnal's picture

Unlimited euro bailout by Ogolfer and his junta:

(hot chick with brains!)

CPL's picture

Cute but short a rack and bad teeth.  The structure looks sound though.  Nothing 10k couldn't fix. 

Jeff Lebowski's picture

And some tweezers for that monobrow.

Cheesy Bastard's picture

I think that might be a teenage boy with long hair.

no life's picture

Hold on, I'm going in for a look-see..

topcallingtroll's picture

Yeah that is the nice thing about being rich.

You can find a fixer upper girlfriend with potential and take her in for a complete overhaul.

bank guy in Brussels's picture

Cool hippie-chick type babe there in the vid, Leandra Bernstein, working for Lyndon LaRouche. Interesting.

LaRouche should have his people pitch in to the comments on ZeroHedge more, would liven things up. LaRouche is a radical voice that people sometimes don't find easy to categorise ... Imprisoned by the US feds for a while but Bill Clinton pulled him out.

topcallingtroll's picture

He is a populist reactionary with progressivist leanings.

Think of Pat Buchanan and franklin roosevelts love child.

CPL's picture

I think you are looking for the term "block grant" which nearly wrecked the US municipalities in the 70's. 


Looks like it's going just as well in today's time frame.

e-man's picture

Along that same thought, why not ask for a 450% haircut?  Never waste a good default. 

RockyRacoon's picture

Greece is writing the playbook here.   The world markets had better be watching... closely.

Debt has to be extinguished sooner or later, with profit, or with pain.  It's the  manner in which it disappears that is on the table.

Elwood P Suggins's picture

Wait until they demand a big haircut on ALL of their bonds not just those held by the private sector.  Merkozy will shit itself then!

The Big Ching-aso's picture



Haircut?     This is more like a scalping.

CPL's picture

Not yet it isn't.


25% isn't remotely close to the required fix to Greece.  70-80% is required to come to even come close to a balance.  100% if they want to see any real financial growth.

LoneCapitalist's picture

Arent they actually talking about a 75% haircut? They were already at 50%. 25% would be going the wrong way no?

thunderchief's picture

Dumb, Dumb...

So they can continue to get loans and money they cannot repay.

100% is a default.

Learn the IMF/ECB rules fool.


disabledvet's picture

You don't have to "go" for anything to do that. All you have to do and indeed all that is in fact being "done" is "let events play themselves out." next up is a "talk to the hand" moment as so called "investors" like Petey here realize "there is no value" (let alone worth) to their paper. The banks that are outside Europe and can still lend hold all the cards here.right now I can only think of one...maybe the form of HBC and GE capital.

Milestones's picture

I was in Argentina a year or so after they told the IMF to pound sand but I don't remember what the figure was that they ended up with as far as % of write down. I do remember there were a whole lot of unhappy campers. Incidently I think that the IMF is CA CA now in South America. 

Anyone have those figures for the Argentina "default". Been back to Bs As couple of times since and even with the inflation they seem to be doing much better.        MIlestones

redpill's picture

How is it anything short lunacy to buy bonds from a country that is actively negotiating defacto default with existing bond holders?

GeneMarchbanks's picture

Are you asking us or the ECB?

TPTB have proven to be, not master planners and evil geniuses, but a gathering of the least talented people from each country world-wide. There's a strange psychosomatic ability among idiots.

Nice to see Greeks slowly waking from the debt slumber...

Seer's picture

No, they're not stupid.  Their ACTIONS appear to be stupid.  And, well, they are.  BUT, the very system that they were handed, and are operating under, doesn't provide for any solution.  The ONLY thing they can do is to keep tossing the lit bomb hoping that it'll go off in someone else's hands.  We need, however, to get this straight: it was ALWAYS a bomb, and the fuse was predestined to be lit: when the system is based on interest/growth, well, math guarantees the outcome...

trav7777's picture

not exactly...every system like this wants the right breeding and with that comes the ability to act in a cognitively dissonant manner, where you have essentially a private and public reality.  I know people like this.  They admit at times the utter insanity of the "system" but at the same time say that the system has its own demands and if you do not meet them, you get excluded.  Truth is not a demand of the system.  A certain orthodoxy is.

Genius has nothing to do with it.  There were various scientific geniuses who bucked orthodoxy and were shut down by fellow scientists, also ostensibly geniuses and brilliant at math.  Fourier, Faraday, most recently M. King Hubbert- who proposed a notion of national peak production when ALL the other geologists had also seen wells and fields peak and decline.  The systems they belonged to had their own demands.

michael_engineer's picture

You commentary as always is spot on, and insightful, and is some of the most intelligent material that I read here.  But I am tired of getting the finger, even though I find it amusing.  Would it be possible to use a different jpeg that is still jaded in a different way?  The finger takes away slightly from the message.

Seer's picture

If you agree with Trav then you're facing the wrong direction.  If you face the right direction you don't see the finger (only those "on the other side" do).

michael_engineer's picture

It's only an island if you look at it from the water  -- Jaws

High Plains Drifter's picture

TPTB have proven to be, not master planners and evil geniuses, but a gathering of the least talented people from each country world-wide. There's a strange psychosomatic ability among idiots. <<<<<<


sir, they are a lot of things but idiots.............not so much..............

"As a rule, and this rule is inherent in the very nature of the declines and falls of civilizations, the demand for codification reaches its climax in the penultimate age before a social catrastrophe, long after the peak of achievement in jurisprudence has been passed, and when the legistlators of the day are irretrievably on the run in a  losing battle with the ungovernable forces  of destruction. "

Arnold Toynbee


so mr toynbee , like most historians writes about things he sees in in a non descript style , full of flowery vicissitudes, while telling us what happened but never telling us why and who was behind it.


now fast forward to today. 


please read the history of the neocons by kevin macdonald.....


now be sure and understand. this is one small facit of activity. this has nothing to do with banking per se but everything to do with why our country does what it does. 


now , then  just who are the ones who are doing what they do in banking?   are they idiots?   i submit they are not idiots.  oh , one more thing. if you do read macdonald's piece, be sure and pay attention to what is done about leadership areas and how these people always put useful idiots shall we say in positions of power to fool the masses and throw off the dogs from the scent so to speak, of any industrious gentiles that perhaps would try and figure out who is doing what and who has the real power.  


so in conclusion, one must conclude that there are no idiots involved in this business. everyone is doing what he or she is supposed to do.  it looks stupid to us out here in flyover country because it simply does not compute. it does not compute because you and i are not wired like this. all that is going on, is simply slight of hand and it is theft of the wealth of nations. 

RockyRacoon's picture

How is it anything short lunacy to buy bonds from a country that is actively negotiating defacto default with existing bond holders?

That depends upon whose money is being used to buy the bonds.   If the gov't is using my money to buy them, the price/return is of no consequence since the net effect is hoped to be "confidence".   When your ass is in a sling, appearance is all that matters, and cost is not a factor.   Same goes for hedge fund buying, retirement fund buying, and those rich folk with 2-digit IQs.   The buying that is being done seemingly by rational investors is simply shill purchasing by TPTB.   Your description of this as "lunacy" is right on the money -- your money.

edmondantes's picture

25 cents on the dollar is about the right price for banana republic debt: Greece, Ecuador, Italy, Spain, Argentina ... all the same thing

so we are getting there

tom a taxpayer's picture

Katie, bar the door!

BlueStreet's picture

Go ahead and shave it all off Greece, it will grow back eventually, maybe even thicker.



bigdumbnugly's picture

lol.  but once they get past that initial itchy stage they'll be ok.

BlueStreet's picture

They've got ointments for that itch, fix it right up.  

CORNGUY's picture

Nah.......shit wont grow back.  Once your bald..........your chances of regrowing any hair are pretty slim.   

Beatscape's picture

It's tough for the Eurocrats to continually fight reality. When will the ECB fianlly throw in the towel and engage in massive monetization?

Ahmeexnal's picture

I believe they already have, but the news will come once a loaf of bread is worth 10 million reichmarks -ahem- euros.

RobotTrader's picture

Hilarous.  Marc Faber on Bloomberg this morning said he'd rather buy Italian bonds at 7% that the 30-yr. U.S. Bond which pays practically nothing.

Says the Fed can print, Italy can't.

By the way, the Fed better start printing faster and equities better start skying, otherwise the PM bulls are going to be in a world of hurt.

redpill's picture

PM bulls in a world of hurt?  How about all the momo traders still crying in their cheerios over Travel Zoo, Groupon, Netflix, Lululemon, ad nauseum?


Ahmeexnal's picture

How did that trade go, Robo?

High Plains Drifter's picture

did tyler ever  take away this turd's contributor privileges? 

GeneMarchbanks's picture

Faber is always funny. I especially like it when he does that thing where he tells the truth about a situation and then everyone acts all confused and dumb, kinda like you just did.

Rip van Wrinkle's picture

What deposit my money in one of the banks run by Corzine's mates??


Yeah, sure I'm going to leave my estate to those kleptocratic pr**ks.

Seer's picture

Nothing like being worried about protecting worthless shit...