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Portugal Reenters Bailout Radar As Traders Realize Greek "Rescue" Model Is Not Feasible Here

Tyler Durden's picture


Remember when Europe was fixed, if only for a few weeks? Those were the times, too bad they are now officially over. EURUSD is back under 1.30 in thin volume because even as we "shockingly" find that, no, Greece did not have the "upper hand" since Greek bondholder negotiations just broke down (and that over the matter of a cash coupon delta between 3.5% and 4.0%, which implicitly means that from a bondholder IRR perspective, when taking a 15 cent EFSF Bill into consideration, the hedge fund community fully expects the country to be in default even post reorg in at about two years). But it is that "other" European country which was recently junked by S&P (causing the 10 year to soar to new records), that is now the focus point of (re)bailout concerns. Reuters reports: "The euro nudges down some 20 pips to $1.2995 in thin, illiquid trade with Tokyo dealers citing renwed fears Portugal may need a second bailout. Undermining the glow of Lisbon's achievements in reforming the country's labour market is the rapidly rising market concern that it is the next potential candidate to default in the euro zone after Greece -- a point that is fast becoming clear as Athens approaches the end of its debt restructuring talks." And here is the paradox: if Greece succeeds in persuading the ad hoc creditors to accept a 3.5% coupon, which it won't absent cramdown and CDS trigger, Portugal will immediately if not sooner proceed with the same steps. There is however, a problem. Unlike Greece, where the bulk, or over 90%, of the bonds are under Local Law, and thus have no bondholder protections (a fact about to be used by Greece to test the legal skills of asset managers who can retain the smartest lawyers in the world and generate par recoveries on their bonds in due course), in a generic Portuguese Euro Medium Term note Programme prospectus we find the following:

Oops: negative pledge (a simple one at that, not that garbled monstrosity of verbiage that some Greek bonds have) and UK-law. Looks like the Greek Modus Operandi of dealing with its uber-leverage problems will be quite hindered (read impossible) when its comes to Portugal, where a substantial portion of its sovereign debt actually does have significant creditor protections. It also means good luck not only trying to enforce a coercive cram down, but also attempting to layer on a primed piece of debt with liens on top of the EMTNs (i.e. IMF bailout capital), without every asset manager in possession of these bonds suing the country into oblivion at a London court of law.

Finally look for creditors to flock to these bonds at the expense of any other bonds (Interbolsa, older issues) that do not, as we predicted over the weekend.

So much for the Greek deleveraging case study applied to other European countries: think fast Troika.


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Tue, 01/24/2012 - 00:22 | 2091375 Manthong
Manthong's picture

Looks like a reasonable legal solution may be at hand.


Tue, 01/24/2012 - 00:41 | 2091431 phungus_mungus
phungus_mungus's picture

Wait a second... Bloomberg, CNBC and Reuters all said this was over last week??!??!



Tue, 01/24/2012 - 01:04 | 2091467 SHEEPFUKKER

My bailout is bigger than your bailout. 

Tue, 01/24/2012 - 02:34 | 2091516 The Big Ching-aso
The Big Ching-aso's picture



Portugal, soon to be Tortugal.

Tue, 01/24/2012 - 05:37 | 2091666 disabledvet
disabledvet's picture

That's a third financial weapon of mass destruction with timer set and no way to turn it off. Next stop: "the core."

Tue, 01/24/2012 - 08:03 | 2091748 francis_sawyer
francis_sawyer's picture


Yeah... Speaking of Spain (and looking ahead to the rest of the core), are they more like Portugal (settled in London), or a garbled monstrosity like Greece)?

Might as well cut to the dominoes...


Tue, 01/24/2012 - 08:58 | 2091834 Tyler Durden
Tyler Durden's picture

That's the $64K (worth of Alpha) question.

One does one's homework -> one makes $$$

Tue, 01/24/2012 - 09:06 | 2091865 francis_sawyer
francis_sawyer's picture

no doubt

Tue, 01/24/2012 - 03:41 | 2091588 Silver Bug
Silver Bug's picture

It's QE to infinity, there is nothing they can do about it!

Tue, 01/24/2012 - 00:12 | 2091376 The Fonz...befo...
The Fonz...before shark jump's picture

Oh shit we forgot about Portigal!

Tue, 01/24/2012 - 00:24 | 2091411 ucsbcanuck
ucsbcanuck's picture

Spain is now busy losing its lunch...

Tue, 01/24/2012 - 01:52 | 2091520 Manthong
Manthong's picture

Tossing its tapas?

Puking its pollo?

Hurling its huevos?


Tue, 01/24/2012 - 00:13 | 2091380 Kaiser Sousa
Kaiser Sousa's picture

let's get this party started right....


Tue, 01/24/2012 - 00:19 | 2091392 The Fonz...befo...
The Fonz...before shark jump's picture

You know what's funny while we focus on the Europe...Illinois is busted out they owe 27 billion in bonds and have about 8 billion in unpaid bills...over 60 billion owing to pension funds...ex governor was a crook and the name escapes me but who was the doucher senator from that state?

Tue, 01/24/2012 - 00:24 | 2091406 Hansel
Hansel's picture

I think a lot of the Euro fixation and rating agency charades are to divert focus from the domestic bond market.

Tue, 01/24/2012 - 04:52 | 2091640 jeff montanye
jeff montanye's picture

doucher demeans a useful (at times?) device.  he is a despicable criminal who should be jailed for life.  ditto g.w. bush.

Tue, 01/24/2012 - 05:41 | 2091671 disabledvet
disabledvet's picture

Watch as half a million former Chicagoans wander into Wisconsin. Indiana will be right behind--with a desperate struggle for Columbus...which is a huge City btw...getting underway.

Tue, 01/24/2012 - 00:20 | 2091395 Sandmann
Sandmann's picture

When these Bondholders go mad in court they should recall that only England has a Court of Chancery and that the Supreme Court in the European Union is The European Court of Justice in Luxembourg which can be very quixotic

Tue, 01/24/2012 - 01:24 | 2091494 Non Passaran
Non Passaran's picture

I wouldn't be surprised if Eurocrats have already started scheming how to make the UK (and it's courts) more "cooperative".
The F.U. compact requires Ireland to "harmonize" (increase) taxes. Who knows what will be asked of the UK.

Tue, 01/24/2012 - 04:53 | 2091643 jeff montanye
jeff montanye's picture

f. u. compact?  freudian slip?

Tue, 01/24/2012 - 07:45 | 2091740 Sandmann
Sandmann's picture

The UK does not have a unified legal system so that would be hard. Since the European Court of Justice is the SUPREME COURT your point is bizarre

Tue, 01/24/2012 - 00:20 | 2091400 Hansel
Hansel's picture

Am I the only one that thinks suing a sovereign country, especially in a foreign court, is mental masturbation?  Are the hedge funds and lawyers rich enough to hire mercenaries to 'extract value' from Portugal if it comes to that?  And if you say that Portugal would risk being locked out of the bond market if they didn't submit to whatever some London court thinks, aren't they already shut out?

Tue, 01/24/2012 - 00:39 | 2091428 CrashisOptimistic
CrashisOptimistic's picture

That's not the issue.

People simply HAVE to get their mind wrapped around THE ONLY THING THAT MATTERS.

If Portugal's credit goes to shit and they refuse to accept the findings of a London court . . . THEN NO ONE WILL SELL THEM OIL.  They will have no money to pay for it.  They run a deficit.  It is substantially oil imports.  Without oil, food doesn't transport and they have people die.


Tue, 01/24/2012 - 01:18 | 2091483 Caviar Emptor
Caviar Emptor's picture

Portugal yield spreads over Bunds began to blow out last week (as reported by Reuters, posted by me). There was a definite Greece-domino effect. If Tyler is right and Portugal can't reasonably force haircuts, then the only remaining solution will be a troika bailout funded by money printing. And an awful precedent that would set because all future issuance would have to be backed in the same way. Hence the Euro spiral of austerity and lower growth would be imposed to "pay for it". And pay for it they will with political repercussions

Tue, 01/24/2012 - 01:21 | 2091488 CrashisOptimistic
CrashisOptimistic's picture


Germany.  Germany.  Germany.


Tue, 01/24/2012 - 10:04 | 2092055 Calmyourself
Calmyourself's picture

The choice would be immediate cuts to gov spending to below taxes paid in.  At that point you have a surplus that can be used for commodities.  The banks and hedgies get stiffed, as wel l as the elderly, retirees, heck most of those promised unsustainable goodies, that simple.

Tue, 01/24/2012 - 04:58 | 2091646 jeff montanye
jeff montanye's picture

u.s. current account deficit trending better but still substantial.

Tue, 01/24/2012 - 10:26 | 2092171 SomethingWicked
SomethingWicked's picture

That’s like saying ,“The murder was just a little bit grisly” or “The FED is only slightly incompetent”.

Tue, 01/24/2012 - 05:01 | 2091647 John_Coltrane
John_Coltrane's picture

Indeed, if you're going to say screw you to your creditor you better be self-sufficient, (true for individuals and soverigns).  Otherwise the court will allow the creditor to intercept any payment you make in the future (as your very nice oil example suggests).  All payments must be cleared through the financial system. 

So, consider, what does Portugal (or Greece for that matter) have to barter with, say Iran, for crude?  Can they refine it themselves?  Can they produce all the food they need as a nation, all the medicine etc.?  

Solution: hard work and austerity, savings and production.  Not the strong suit of any of the PIIGS.

Tue, 01/24/2012 - 06:03 | 2091689 StychoKiller
StychoKiller's picture

I seem to recall that Portugal possesses a large amt of Au...

Tue, 01/24/2012 - 05:46 | 2091675 disabledvet
disabledvet's picture

This is a good observation...and get's to the point of "this why we destroy small countries in Europe." (to wit: Portugal, Greece, Ireland) in other words this has always been about getting the money back and NOT "bailouts." of course once the country is..."wiped off the map"...then what? Some "union"!

Tue, 01/24/2012 - 10:01 | 2092044 Calmyourself
Calmyourself's picture

How many divisions do the banks & hedgies control?  It's the only way to enforce a judgement against a sovereign.

Tue, 01/24/2012 - 00:21 | 2091401 Timmay
Timmay's picture

"We can pay the debt" becomes...

"We can't pay the debt" becomes...

"We won't pay the debt" becomes....


Tue, 01/24/2012 - 00:26 | 2091414 ucsbcanuck
ucsbcanuck's picture

Germany pays the debt!

Tue, 01/24/2012 - 06:52 | 2091716 trebuchet
trebuchet's picture


Tue, 01/24/2012 - 00:25 | 2091413 Gamma735
Gamma735's picture

Fun with Fiat Currencies.  Everybody has their wealth stolen!

Tue, 01/24/2012 - 02:24 | 2091543 stirners_ghost
stirners_ghost's picture

As soon as gold and silver are adopted as the legal tender, they are invested with an altogether new utility. By means of this new utility, whoever monopolizes the gold and silver of any country - and the currency, as we shall soon discover, is more easily monopolized than any other commodity - obtains control thenceforth over the business of that country; for no man can pay his debts without the permission of the party who monopolizes the article of legal tender. Thus, since the courts recognize nothing as money in the payment of debts except the article of legal tender, this party is enabled to levy a tax on all transactions except such as take place without the intervention of credit.


-William Batchelder Greene (1870)


Tue, 01/24/2012 - 00:29 | 2091421 ghostfaceinvestah
ghostfaceinvestah's picture

Can't be long before the Irish start asking for haircuts too.

Tue, 01/24/2012 - 01:54 | 2091523 bob_dabolina
bob_dabolina's picture

OWS too, they're entitled to haircuts just like everyone else.

Tue, 01/24/2012 - 05:03 | 2091648 jeff montanye
jeff montanye's picture

ows on one side of the coin, ron paul on the other.  being used to remove the screws holding the hinges of the door.

Tue, 01/24/2012 - 00:39 | 2091427 JW n FL
JW n FL's picture

Vincent Browne v The ECB

SOOOOOOOOOOOOOOOO  Worth the time to watch!

God Bless Vincent Browne!! and the People of the Ireland!


Tue, 01/24/2012 - 05:34 | 2091664 forexnovaco
forexnovaco's picture

the irish people werent complaining about the benefits of there ultraleveraged banks prior to the financial crisis when the were enjouing 6%growth. Now that everything goes bust its not their fault and germany should pay.... hmm think thats just fair for the german people who have a lower growth prior to the crisis because they didnt lever up so much. and think about what happens when these irish banks go bust ireland as a whole goes bust. reality is a bitch i would say

such an ignorant reporter

Tue, 01/24/2012 - 05:49 | 2091676 disabledvet
disabledvet's picture

They got phucked. Open your eyes.

Tue, 01/24/2012 - 07:11 | 2091726 forexnovaco
forexnovaco's picture

yup but deal is deal. so thats no reason to fuck the germans too.

and by the way ireland is one of the biggest recievers of EU funds (not bailout funds) in proportion to their GDP and guess what who has to pay the most. a little hint it starts with G.

why is it that germany always has to pay when somebody screws it up because it has the money (lol sarc) to do so but only because they acted a little bit more prudent than others.

Tue, 01/24/2012 - 00:42 | 2091434 acompletedouche
acompletedouche's picture


ES should be up 50 handles by 3am!

Tue, 01/24/2012 - 00:51 | 2091437 Pancho Villa
Pancho Villa's picture

The European economy may be going down the tubes, but at least there will be plenty of work for barbers there considering all the haircuts that bondholders are going to be taking.

As you walk down the street in the financial district of a European city and you see someone who looks like a skinhead wearing a (rather shabby) business suit, you will know that he is a holder of European bonds.

Tue, 01/24/2012 - 00:50 | 2091449 Al Huxley
Al Huxley's picture

Just going to reiterate a comment I made earlier - you don't need anything other than common sense to understand that lending Portugal (or Greece, or Italy, or Spain, or England, or the US for that matter) is a bad fucking idea. Listen - they're broke - if you lend them money, you're not going to get any of it back - no fucking principal, forget about the interest.

Tue, 01/24/2012 - 01:06 | 2091468 monopoly
monopoly's picture

Al, that was great. Here we have Obama, Geithner, The Bernank, Sarkosy, Merkel, our Congress and the ECB and you advise "common sense". We figured that out long ago. Common Sense is not something that most politicians posess. Actually, if they had common sense they would never be a politician since they probably have a modicum of intelligene. Now if you want to discuss Thomas Paine and "common sense" back in 1776 when we had real men and adults trying to gain freedom from British rule. Well, then I will listen to you about common sense.

Otherwise, keep stocking up.

Tue, 01/24/2012 - 01:22 | 2091491 Caviar Emptor
Caviar Emptor's picture

They're all heavily used hoes at a beauty contest. Who isn't broke? Utimately the money to back the broke sovereigns comes off the US Fed money tree. If they go full retard then yields on Portugal debt should be equal to US debt. And if they fail then one more domino falls. 

Tue, 01/24/2012 - 00:59 | 2091460 non_anon
non_anon's picture

more lipstick

Tue, 01/24/2012 - 01:11 | 2091476 ekm
ekm's picture

Tylers and Durdens

Ok, ok, oooooooooooooooook.

Now relax. I'm from Europe, living in Canada. Try to tell all these obvious things very tactfully to us. Where is your chivalry?

Tue, 01/24/2012 - 16:14 | 2093746 ucsbcanuck
ucsbcanuck's picture

Tactfully: Your countries have borrowed more than they can ever pay back, and now you are paying the price.

Tue, 01/24/2012 - 01:21 | 2091490 Fastback
Fastback's picture

This is getting more interesting than 2 midgets and a donkey in Tijuana!

Tue, 01/24/2012 - 01:47 | 2091515 q99x2
q99x2's picture

NWO Monkey embryos. I need a haircut too.

Tue, 01/24/2012 - 01:50 | 2091519 I am a Man I am...
I am a Man I am Forty's picture

off topic:  hey, how is mittens making so much money on his money, he's got some great returns going on, he has to be getting some money from a family trust or something, he's making 10% plus returns

Tue, 01/24/2012 - 01:54 | 2091524 AC_Doctor
AC_Doctor's picture

Is Portugal the new floater?  The turd that won't flush...

Tue, 01/24/2012 - 02:56 | 2091557 Oliver Jones
Oliver Jones's picture

They probably feel they can flush anything if they cover it with enough toilet paper (euros) first.

Tue, 01/24/2012 - 02:36 | 2091542 Dr. Engali
Dr. Engali's picture

Okay. How do you go about suing a soveriegn in court if they just tell you to take what they are offering or fuck off? Iguess you can sue them but it seems like an exercise in futility.I don't see how they get out of this without the ECB printing or busting up the Euro project so that the soverigns can print.

Tue, 01/24/2012 - 05:43 | 2091669 roy10
roy10's picture


These were commercial transactions and Portugal is not Peru or Yemen. No English court will over-ride Portuguese sovereignty. Not in a million years.

The value of these lawsuits is in the nuisance value – nothing more. Portugal will restructure in one way or another.  

I think we are ignoring the biggest news from yesterday – by denying Greece further bailouts, the EU is basically saying that the crisis has moved from the bailout phase to the default/restructuring phase. Given no more bailout money, Greece is almost certain to default sometime in the next few years. If the same attitude is applied to Portugal, they will also default. Apparently, the EU feels secure enough in the ECB Italian/Spanish firewall to let these countries default.


Tue, 01/24/2012 - 05:55 | 2091680 disabledvet
disabledvet's picture

That's what they're telling themselves. We shall see. An economy is simply "doing more with less." this is AUSTERITY. And an IMPOSED austerity at that. No one is arguing anything but a massive downturn is around the corner.

Tue, 01/24/2012 - 06:07 | 2091690 roy10
roy10's picture

If you pay attention to the latest developements, the EU is hardly imposing anything anymore. We’re going into a new phase. EU is basically saying to Greece – “Good luck, you’re on your own”. I think Portugal is next.

My conclusion is that the EU is no longer afraid of contagion. They are confident that the ECB firewall over Italy and Spain will hold when Greece and Portugal default. The markets seem to support that thesis.

Tue, 01/24/2012 - 06:18 | 2091702 StychoKiller
StychoKiller's picture

Hmm, several dozens of markets with TRILLIONS of moving parts...what could possibly go wrong...go wrong...go wrong...

Tue, 01/24/2012 - 06:37 | 2091711 roy10
roy10's picture

Italian/Spanish bonds are saying we're fine for now. This will probably give the EU the confidence to be more aggressive.

Tue, 01/24/2012 - 06:00 | 2091684 disabledvet
disabledvet's picture

Which brings up the question: was contagion prevented or caused by this approach? It's too late to stop the total collapse of the EU now...I don't think our super mario's ever had a chance. So now "the experiment" flies apart...

Tue, 01/24/2012 - 06:08 | 2091692 roy10
roy10's picture

Look at Italian bonds - they will be at 5% very soon. Going up for a month straight despite the Greek problems. I think the market is saying contagion is no longer an issue.

Looks like the EU is prepared to test that.

Tue, 01/24/2012 - 07:47 | 2091743 Sandmann
Sandmann's picture

The US arrested Europe's Best Last Hope......

Tue, 01/24/2012 - 07:30 | 2091735 PORTA PORTA
PORTA PORTA's picture

IMF knows .. who, when, how, if then else...

and instead of issuing bridge loans - this is their role !!! - they manipulate the system the way they like, when they feel like it.


PLEASE READ the attached doc.

IMF Involving Private Sector in Restructuring Sovereign Bonds.... 2001/September



Tue, 01/24/2012 - 08:15 | 2091758 Donlast
Donlast's picture

Portugal is a very long-term ally of England, goes back centuries. I doubt the UK government would turn its back on them if they got in a legal debt imbroglio. 

Another point:  is not the great bulk of Portuguese indebtedness private?  Money owed to Spanish banks? 

Again, given Portuguese history, I doubt many of them would lose much sleep if they brought down a Spanish bank or two. 

Tue, 01/24/2012 - 08:24 | 2091774 Sandmann
Sandmann's picture

You forget the Little Maoist at the EU Commission.....maybe he will go back as Goldman Representative to his old job as PM of Portugal

Tue, 01/24/2012 - 11:02 | 2092319 nah
nah's picture

why cant we live in a world where it all spends the same

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