Derivatives

A second credit event with respect to the Hellenic Republic?

Possibly, but we will have to wait another two weeks before we know. Yesterday’s press release of the Greek Ministry of Finance:

The Hellenic Republic today announced that it has decided to extend until 9:00 p.m. (C.E.T.) on 4 April 2012 the expiration deadline for holders of each series of its bonds under laws other than Greek law and of bonds issued by state enterprises and guaranteed by the Republic to offer to exchange their bonds in response to the invitations announced by the Republic on 24 February 2012. […]

In addition, the Republic announced that it reserves the right, in its discretion, to adjourn any of the bondholders’ meetings convened to vote on the proposed amendments in accordance with the terms of the relevant series of bonds.

CCP Default: some questions

Patrick Pearson (EC):

• Can you imagine what happened in Hong Kong, when the CCP went into default and the financial market closed for a week?
• Can you imagine that happening in London?
• Can you imagine what would happen on the Monday when it opens?
• How do you handle the default of a CCP in a crisis?
• Where do you begin?
• Where does the financing come from?
• Should you bail it out?
• Or do you let them go down the drain and let the market sort it out?
• How do you handle the default of a CCP in a crisis?
• Is that a political responsibility our political masters want to take?
• How would UK chancellor of the exchequer George Osborne explain to the UK taxpayer, ‘Sorry, I need your money, we need to bail out something called LCH.Clearnet’?

The Health of the U.S. and European Banking Sectors

As measured by CDS spreads. ISDA and S&P launch two new indices: the CDS U.S. Financials Select 10 Index and the CDS European Banks Select 15 Index.

The Hellenic Republic: The Auction

Final Price: 21.5% as reported by Markit. In Greek Deal Highlights Flaws in Default Swaps, the WSJ explains why the more or less realistic outcome is to a large extent a matter of luck:

But the happy outcome owes much to mere chance. It masks flaws in the contracts, say some market participants and legal experts, that have rattled investors and are leading to calls to revamp how the swaps are handled for defaulting sovereign nations. (…)

By happenstance, some of the new bonds Greece has issued in its restructuring have a market price close to the total value of the package creditors received—about 22 cents on the euro. Those bonds will help set the CDS payout, and trouble will be averted: CDS holders will receive about 78 cents, roughly equivalent to the loss bondholders suffered.

EMIR

The Council Secretariat has circulated the compromise text, agreed in the recent trilogue. The European Parliament is expected to give its approval at first reading, planned for 29th March 2012.

Derivatives to blame

From Risk, Derivatives blamed for Goldman Sachs’ “toxic” culture:

Goldman Sachs’ “toxic” culture is a result of derivatives, according to industry insiders.

The comments come in response to a letter posted on the New York Times website today by Greg Smith, head of Goldman Sachs’ US equity derivatives business in Europe, the Middle East and Africa. Smith has resigned from his post, citing the bank’s “toxic and destructive” culture as the reason for his decision.

Gunther Helbock, head of operational risk at Austrian bank UniCredit, believes this culture has developed as a result of selling unregulated derivatives in the lead-up to the financial crisis.

Go to the New York Times website to read Smith’s letter. The Goldman response is here.

The Hellenic Republic Credit Event Page

Is here.

The MF Global debacle

An interesting development, reported by Dealbook:

MF Global Customers Said to Get Offers for Their Claims

The thousands of MF Global customers whose lives and businesses were derailed after $1.6 billion vanished in the collapse of the brokerage firm have now received offers to sell their claims and recoup nearly the entire shortfall, people involved in the negotiations said.

What was once thought to be a lost cause has erupted into a bidding war among Wall Street firms: Barclays, the Royal Bank of Scotland and the Seaport Group, a little-known firm that specializes in distressed assets, are all scrambling to buy MF Global customer claims.

On Monday, Barclays Capital, the investment banking unit of the London-based bank, agreed to purchase most claims for 90 percent of face value, the people said. R.B.S has said that it will pay 91 percent for the claims of institutions (but not individuals), according to a term sheet.

The possible turn in fortunes for MF Global customers began with a bid from Barclays that followed six weeks of negotiations between the bank and the coalition of customers. Its bid represented a belief that Wall Street investors have an appetite for claims, which customers filed last month with a court-appointed trustee. Other suitors soon followed Barclays.

Has some lawyer discovered a loophole inside the black hole that swallowed up client monies?

CDS & Silliness (No. 2)

In Greece’s CDS: more lucky than smart the Reuters ‘finance blogger’ argues, basically, that if Greece had been a North American corporate, then there wouldn’t have been a credit event.

CDS & Silliness

Greek Credit-Default Swaps Are Activated, NYT Dealbook (Peter Eavis): 

Nearly $70 billion of swaps are currently outstanding on Greek debt. But the net number is $3.2 billion, which is arrived at by subtracting swaps that pay out on a default from those that get paid.

I.e., the “net number” should be … ZERO (by Eavis’ definition).

DTCC determines net numbers (Net Notional Values) as the sum of net protection bought by net buyers (of protection) or, equivalently, as the sum of net protection sold by net protection sellers.