Greek Bondholder Talks Stalled, Agreement Unlikely By Monday Deadline

Tyler Durden's picture


We will shortly present an extended analysis of just why the broader media is once again wrong in their interpretation of who has the upper hand in the Greek bankruptcy "fresh start" negotiations (because while Greece may not have formally filed bankruptcy, or insolvency, or whatever one wishes to call it, the talks right now are basically determining what post-reorg Greece will look like, and specifically its fresh start accounting balance sheet with or without an EOD trigger), and why hedge funds have controlled the process all along.

In the meantime, we were not at all surprised to learn this morning that not only has an agreement not been met ahead of Monday's critical Eurozone FinMin meeting (the first of many for 2012) in Brussels, but talks have "stalled". Dow Jones reports: "Talks between Greece and its private sector creditors over a debt writedown plan appeared to stall Saturday as the banks' top negotiator left Athens amid signs of fresh disagreements over how much Greece would pay its bondholders in the future. Officials close to the talks said they may not conclude before a meeting Monday of euro-zone finance ministers where a second bailout which will keep Greece from defaulting is supposed to be discussed. Without a deal on the write-down of the debt held in private hands, the loan can't be released. Institute of International Finance chief Charles Dallara, who has been negotiating with Greek officials on the bond swap plan for the last two days, left Athens Saturday as hurdles remained over the interest rate the new bonds would pay private sector creditors. "Right now there are no talks. There will be consultations with the EU and the IMF to determine where we stand and then we'll see. It (negotiations) has again become complicated with the new demands over the coupon," said a person with direct knowledge of the talks." Which is why any statements that Greece, or the ECB, has all the leverage are total rubbish - if Greece wanted to get the deal done over Hedge Funds' dead bodies, it would have. It hasn't. And yes, a forced cram down of UK-indentured Greek bonds is still a possibiliy, but we will shortly make all too clear that should Greece proceed with this last ditch scorched earth approach, it would mean a complete overhaul of the entire PIIGS bond market, and why a sell off in €800 billion of it would be imminent.

In the meantime, some more details from Dow Jones:

IIF spokesman Frank Vogl said that Dallara had a personal engagement in Paris and had to leave but that a team remains in Athens. Dallara is not expected to return to the Greek capital over the weekend.


A Greek Finance Ministry official said the IIF chief will continue negotiations with Finance Minister Evangelos Venizelos by phone later Saturday.


The talks, which started up again this week after nearly breaking down a week earlier, come as Greece scrambles to put together a debt-restructuring plan ahead of a Monday meeting of euro-zone finance ministers in Brussels where the debt deal is expected to top the agenda.


However, this now appears unlikely.


"We may not be able to reach a deal before Monday's eurogroup. This is unfortunate because the finance ministers were supposed to have crucial talks on the (second) bailout loan provided there was a deal on the haircut," a senior eurozone government official said.

What this means is that with the March 20 cash outflow "hard deadline" now less than two months away, and absolutely no trace of a deal on the table, the haed default deadline is starin Europe in the face, even as everyone has been giddily gobbling up risk assuming everything is taken care of.

Reaching a deal with private creditors is a key precondition for Greece to receive a fresh, EUR130 billion bailout from its European partners and the International Monetary Fund.


The aim is for a voluntary restructuring of some EUR206 billion of debt Greece owes its private creditors by exchanging old bonds for new ones worth half the value. That would wipe out EUR100 billion worth of Greece's EUR360 billion debt pile--saving the country some EUR4 billion a year in interest payments--but forcing steep losses on bond holders.


The two sides appeared to be closing in on a deal that would give creditors new bonds paying a 3.5% coupon for shorter maturities and rising to a cap of 4.6% on longer-dated bonds. The average coupon would amount to around 4%


Earlier, people familiar with the matter said that the IMF and Germany don't believe Greece's debt would return to sustainable levels if the average coupon on the new bonds is around 4%, pushing for a lower coupon.


"We were discussing technical and legal issues having agreed in principle to an average coupon of 4%, but the IMF insists this won't be enough to bring (Greece's) debt back to sustainable levels," said another person with knowledge of the talks. This is the second

intervention by Germany and the IMF in debt talks in the last eight days over the coupon rate.

Reuters adds that the ever-cheerful Dallara (who had a "sure deal" when Greek bonds were trading about 300% higher), has now left the country:

The representatives of Greece's private creditors left Athens unexpectedly on Saturday without a deal on a debt swap plan that is vital to avert a disorderly default, sources close to the negotiations told Reuters.


Negotiations will continue over the phone during the weekend but it is unlikely that an agreement can be clinched before next week, the sources said, as Athens races against the clock to strike a deal.


The IIF said on Friday that the elements of the deal were coming into place, adding: "Now is the time to act decisively and seize the opportunity to finalize this historic deal and contribute to the economic stability of Greece, the euro area and the world economy."

And to think: a €9 billion hedge fund blocking position is all it would take to kill all this "decisiveness" and the "opportunity." Much more on this topic shortly, in a post to cover the downside scenario, which now appear inevitable, next steps.

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Sat, 01/21/2012 - 11:57 | 2084054 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

A Greek default is priced in.

Sat, 01/21/2012 - 12:08 | 2084067 Lord Welligton
Lord Welligton's picture

Could lead to civil war.

I don't think that has been priced in just yet.

Portugal to follow suit?


Sat, 01/21/2012 - 12:12 | 2084089 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Portugal default:  Priced in.

Sat, 01/21/2012 - 13:16 | 2084226 e2thex
e2thex's picture

USD====>IMF======>Greece, Portugal====>Austerity Discussions(Cafes, Sun, Wine)====>Rewind

Sat, 01/21/2012 - 17:34 | 2084979 Vaiman
Vaiman's picture

Wow.  Bloomberg was offering a different story yesterday.....laced with some good ole hopium.

Greek Debt-Swap Accord ‘Coming Into Place’

Doesn't sound like it's coming into place.  Maybe into "a" place....a place of more frustration, deadlock and failure!


Sat, 01/21/2012 - 18:02 | 2085018 phungus_mungus
phungus_mungus's picture

Bloomberg isn't the only retard factory in the media reporting all is going to be fine, a deal is in place, etc...

The crack rock these loons are hitting must be ginormous! 


Sat, 01/21/2012 - 18:57 | 2085119 SeattleBruce
SeattleBruce's picture

Oh the difference 1 day can make...or 2 hours...or just a source of information that isn't totally captured by TPTB...

Sat, 01/21/2012 - 12:13 | 2084093 agent default
agent default's picture

Don't think so.  Basically the EU/IMF will make certain that Greece will be so thoroughly crushed and ground that no other country will want to go ahead with a similar debt reduction process.  The Greeks don't get that this PSI nonsense will turn out far worse than an immediate and outright default.

Sat, 01/21/2012 - 15:03 | 2084513 JLee2027
JLee2027's picture

Don't forget the old mantra that when you owe the money, the debt enslavers own you. However, if you owe the enslavers huge and unpayable amounts of money, you own them. 

Greece is not the one who is desperate here.

Sat, 01/21/2012 - 15:25 | 2084586 CrashisOptimistic
CrashisOptimistic's picture

For he 90th time, there is no default.

If Greece were declare they are not repaying the debt, the banks can just nod and smile and ignore them, and continue to compound the interest and penalties forever.  If Greece then ever holds an asset outside Greece or the EU, the banks can get a local court to confiscate it.

This is forever.  There is no default.  A sovereign default doesn't work.  It used to be if a country owed another money, and then did not repay it, it would mean war and annexation of territory.  

Banks have no armies, and even if they did, Greece doesn't have assets inside Greece that could be confiscated.  The last thing banks want is a sovereign state of their own so they don't want territory, either.

So forget defaults.  They don't exist.


Sat, 01/21/2012 - 16:43 | 2084854 roy10
roy10's picture

You cannot confiscate anything from a sovereign government. That’s the entire idea of being sovereign. There is no recourse for the bond holders.

Sat, 01/21/2012 - 18:27 | 2085063 CrashisOptimistic
CrashisOptimistic's picture


Of course you can.  Greece has state owned shipping.

Sat, 01/21/2012 - 18:41 | 2085085 roy10
roy10's picture

You can't = no law allows it.

Sat, 01/21/2012 - 19:30 | 2085191 Vaiman
Vaiman's picture

I would think a default would be similar to a bankruptcy.  The slate is wiped clean and nothing can be collected, no judgement against the creditor remaining, nothing owing.

Sat, 01/21/2012 - 21:17 | 2085441 CrashisOptimistic
CrashisOptimistic's picture

It would be, but there is no international bankrupcy court.

Simply that.  Greece can declare they won't repay the debt.  The banks don't have to listen.  They can compound the numbers and send requests for payment every quarter.  Greece ignores it and can never hold assets in overseas banks.

There is no law on this matter.  The Greeks borrowed the money.  The creditors want their money back.  Period.

There is no bankruptcy court with international jurisdiction.

Sun, 01/22/2012 - 00:19 | 2085787 sun tzu
sun tzu's picture

You're such a fucking idiot and wrong on every point

Sun, 01/22/2012 - 03:43 | 2085985 spartan speculation
spartan speculation's picture

WRONG .  they're trying to change greek law now so that bond holders can take assets from their government in case of a default. as it stands now bondholders in an event of a default get what they deserve nothing. 

Sun, 01/22/2012 - 13:02 | 2086542 sun tzu
sun tzu's picture

the greeks need to start lynching some politicians if that happens

Sun, 01/22/2012 - 00:18 | 2085785 sun tzu
sun tzu's picture

You're full of shit. Plenty of countries have defaulted and I haven't seen their assets seized. 

Sat, 01/21/2012 - 22:44 | 2085621 Calmyourself
Calmyourself's picture

So nothing changes until people are hungry.. I am glad you all say this better than me, no rule of law, means no contracts, no CDS, no derivatives no nothing just a slide into fascism cheered by the complicit media and the completely soporific sheep..

Thu, 03/29/2012 - 05:58 | 2299928 marusca91
marusca91's picture

jocuri cu bile it would mean a complete overhaul of the entire PIIGS bond market, and why a sell off in €800 billion of it would be imminent. ben 10

Sat, 01/21/2012 - 18:16 | 2085042 supafuckinmingster
supafuckinmingster's picture

If I owe the bank $1000 it's my problem. If I owe the same bank $1000000000 it's their problem.

Sat, 01/21/2012 - 13:20 | 2084237 true brain
true brain's picture

Like I said before: hedgefunds win if Greek defaults. first they cash out their cds, then their shorts on the market will pay off big time, way more than any loss on the bonds. it's cold calculation and cold hard cash.

Sat, 01/21/2012 - 13:36 | 2084289 vote_libertaria...
vote_libertarian_party's picture

I suspect the counter party risk is immense.  Thus the reason it will not be triggered.  Even if the losses are 70%.


Plus, being off balance sheet, does anybody know what was the total value of the insurance bought?  $100B?...$500B...$1T???  You don't have to own the bonds to buy the insurance.

Sat, 01/21/2012 - 13:50 | 2084321 bgilliam83
bgilliam83's picture

exactly right.  This shit show is fascinating.  My dog tootsie might have some Greek/piigs CDS for all I know, but the big catch is that's a bet you do NOT want to end up winning for a number of reasons.  There is no right answer for either the hedge funds or Greece!  Get ready for some blood shed my friends.

Sat, 01/21/2012 - 14:11 | 2084379 Tijuana Donkey Show
Tijuana Donkey Show's picture

Does your dog work for Goldman? I'd be more worried Tootsie is selling CDS, on margin.....

Sat, 01/21/2012 - 15:36 | 2084644 bgilliam83
bgilliam83's picture

No, but she would be a good nomination for the next treasury secretary.

Sat, 01/21/2012 - 22:57 | 2085060 Tyranny is Love
Tyranny is Love's picture

Correct me if I'm wrong but Lucas Papademos is still the Prime Minister of Greece and Evangelos Venizelos is the finance Minister.

As I understand it both are owned by Goldman Sac's, and  Papademosis' a member of the Trilateral Commission (possible Bilderberger?). What are the chances that either of these two are acting independently? What ever happens with Greece on the 20 of March will be what is planned to happen.

Sat, 01/21/2012 - 14:43 | 2084458 dracos_ghost
dracos_ghost's picture

A bigger question is who are writers of CDS's at this point. If the hedgies win on a default, the bigger banks win on a default, who is selling the protection?

Sat, 01/21/2012 - 15:04 | 2084519 Lets Hang Parliament
Lets Hang Parliament's picture

It'll be the "smaller" banks then. But not to worry they have all passed the ECB capital stress testing criteria. What's that funny smell of burning garlic and spaghetti?!

Sat, 01/21/2012 - 18:45 | 2085096 trebuchet
trebuchet's picture

US German French UK banks and Insurance companies e.g. Allianz 

Sat, 01/21/2012 - 22:58 | 2085648 Calmyourself
Calmyourself's picture

Virtually every bank of size in the world is insolvent no one is paying on the CDS which is why there will not be a payout..  Ben and the boys will just change the rules, no law or contracts no problem..

Sun, 01/22/2012 - 00:22 | 2085792 sun tzu
sun tzu's picture

I don't know who is selling the insurance, but I know who will be paying. 


US taxpayers

Sat, 01/21/2012 - 13:31 | 2084271 disabledvet
disabledvet's picture

they never are, are they. One of my all time favorites is going into the collapse of 2008 "financial services have now discovered a business model that makes them immune from the business cycle." Yeah right!

Sat, 01/21/2012 - 12:06 | 2084070 LawsofPhysics
LawsofPhysics's picture

It matters not, move the deadline.  The new age solution to all difficult problems is to always appear to be working on a solution but to never actually have a solution.  Same as it ever was.

Sat, 01/21/2012 - 12:09 | 2084081 Boilermaker
Boilermaker's picture

Exactly.  They'll just redefine everything again and again and again.  Throw in a couple of 'meetings' of the G20 and they'll just perpetually delay everything.

Seriously, who gives a fuck now?  It's a make-it-up-as-you-go world now.

Sat, 01/21/2012 - 15:05 | 2084521 JLee2027
JLee2027's picture

They've been doing that for 2 years on Greece. Time's up.

Sat, 01/21/2012 - 18:31 | 2085075 CrashisOptimistic
CrashisOptimistic's picture

The problem with that scenario is they run a huge deficit.

They have to fund it.  Germany says no.  Their interest rates are so high they can't borrow privately.

I would agree with you if the delay delay delay only applied to the old debt.  There is, however, a difference between dragging out interest payments and borrowing new debt.  

No one will lend.  

Let's all take a step back and remember that all these fixes are just new debt.  They are borrowing new money to make interest payments and EVERYONE involved is carefully ignoring what happens after they cobble together a tranche for March.  They will then have new debt earning new interest, fiscal contraction of GDP and another tranche required in June.

Sat, 01/21/2012 - 12:13 | 2084091 LetThemEatRand
LetThemEatRand's picture

This is not my beautiful ponzi scheme.

Sat, 01/21/2012 - 12:30 | 2084127 Spastica Rex
Spastica Rex's picture

Obscure Talking Heads reference +1

Sat, 01/21/2012 - 20:56 | 2085386 StychoKiller
StychoKiller's picture

"And you may ask yourself:  My God, What have I done?"

Sat, 01/21/2012 - 19:33 | 2085196 Terra-Firma
Terra-Firma's picture

ponzi works on the upside and downside. It's about feeding the direction and has no basis in reality.  Ponzi is a bidirectional, the outcomes the same. BUST!

The upside is perpetuated by easy money as is the down side. The key is who profits; and by profit i mean financially, economically, politically and militarily.

The euro mess is really a political power play. The US housing ponzi was a financial play that morphed into a political and soon to be military play.  The way i see it, the only way for the US to maintain its standard of living is to own the present value of the future value of oil. The worlds most valuable resource.

Sat, 01/21/2012 - 12:11 | 2084087 Stack Trace
Stack Trace's picture

Is a Portugese and Italian default priced in?

Sat, 01/21/2012 - 12:14 | 2084092 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Priced in!

Sat, 01/21/2012 - 12:39 | 2084146 francis_sawyer
francis_sawyer's picture

Damn those Europeans are good... I still have a tough time "pricing in" how much I have to spend on a dinner tab to get some bunga bunga at the end of a date...

Sat, 01/21/2012 - 12:50 | 2084174 Schmuck Raker
Schmuck Raker's picture

"In" is all that matters. "Pricing"...less so.

Sat, 01/21/2012 - 18:56 | 2085114 nodhannum
nodhannum's picture

How much you have to spend? Good lord, you are giving it away for free or paying for it? I've never paid for it in my life. Paying for it is sexist..treating women as sex objects and treating yourself as a money or career object.

Sat, 01/21/2012 - 20:51 | 2085373 oogs66
oogs66's picture

Are weak earnings priced in?

Sat, 01/21/2012 - 13:56 | 2084352 SMG
SMG's picture

Day after day, I sit here and think to myself:   "This is it, this is finally the trigger.  The system is finally going to clear and we can get to work on starting over." But alas it never comes  It's hard to wait.

Sat, 01/21/2012 - 20:58 | 2085392 StychoKiller
StychoKiller's picture

Hard to "Transform", when you're in stasis-lock! :>D

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