In what should come as a surprise to nobody, German banks have announced that they will accept the terms of the Greek PSI whose outcome is due on Thursday. Because as Reuters points out, German banks already have had the time and opportunity to park the bulk of their Greek exposure with the failed German bad bank, which is explicitly funded by the government (thus making the cost to the German government even higher): "While Greek sovereign debt owned by German lenders has a face value of roughly 15 billion euros ($20 billion), in most cases they have already written down that value in their books by about three quarters. FMS Wertmanagement, the biggest creditor with an exposure of nominally more than 8 billion euros, will accept the deal, a person close to the lender said on Monday. FMS, the bad bank set up to hold the toxic assets of bailed-out former bluechip lender Hypo Real Estate, is to formally decide on accepting the debt cut later this week, the person said." German banks... German banks... where else have we seen this today? Oh yes: "Die Welt said that more than half of the 800 lenders that tapped the ECB's 3Y LTRO last week were German, consisting mainly of small savings and cooperative banks." Thank you Jim Reid - so while Bundebank's Jens Weidmann huffs and puffs about the LTRO, it is his own banks are the biggest beneficiaries, in no small part to hedge against Greek exposure. But yes - at least following the absorption of tens of billions in intermediary capital via a variety of channels, German banks can now accept a 70%+ haircut, even if they continue to complain about it in the process: "Commerzbank, which had originally invested almost 3 billion euros in Greek sovereign bonds but has written down its exposure to 800 million, said last month it had little choice but to take part in the bond swap. At the time, chief executive Martin Blessing said: "The voluntariness (of the Greek debt swap) is about as voluntary as a confession at a Spanish inquisition trial."" The Spanish Inquisition appears to have won yet again.
Deutsche Bank, which had an initial exposure 1.6 billion euros, said on Monday it would take part in the deal, which its Chief Executive Josef Ackermann helped negotiate as chairman of bank lobby group IIF.
Sources close to other big German creditors with an original Greek exposure of more than 1 billion -- such as DZ Bank and Erste Abwicklungsanstalt -- also said that the lenders would take part in the swap deal.
Also amusing is that Pimco's Bill Gross, whose firm was one of those voting unanimously to accept the terms of last week's ISDA decision, and who has been bitterly complaining about the implications of the Greek PSI for the bond market on twitter and elsewhere, has parent Allianz gladly joining the "voluntary" exchange offer:
Insurers Allianz, Munich Re and public-sector bank LBBW have yet to make announcements but are expected to join in.
In other words: all is as expected. As has been indicated for a long time, the wild card is and continues to be the hedge funds, how many firms have organized in an ad hoc blocking group, and how much of the $70 billion in gross CDS outstanding is in the form of a basic package, held tightly by funds who have no intention of participating in the PSI.
In this context, the most sought after news this week will be how many funds Bingham has managed to organize, and what is the aggregate net holdings of the ad hoc group.