_ Hedge Funds the Winners if Greek Bailout Arrives
LONDON — Could Greece’s next rescue payout go straight into the pockets of London hedge funds?
That, more or less, is the bet that a growing number of investors are making now as they load up on Greek government securities that mature in March — just when Athens is hoping to receive a lifeline of as much as €30 billion, or $38 billion, from the European Union and the International Monetary Fund.
Conditional on Greece making good on its promises to overhaul its economic foundations, this is in many ways a make-or-break payment for an effectively bankrupt Greece. The new prime minister, Lucas D. Papademos, has warned that without it, Greece might well default and have to leave the euro.
With stakes so high, investors are betting that Europe will go the extra mile to keep debt-strained Greece afloat. And if the price to do that means that taxpayer funds end up bolstering the returns of a few hardy speculators — then, as far as they are concerned, all the better.
Such a trade-off, however, carries ramifications that go well beyond the profit motives of its participants.
For months now, Greece has desperately been trying to persuade its private-sector creditors that it is in their interest to exchange their existing Greek bonds for longer-term securities and accept about a 50 percent loss as part of the bargain. The negotiations are known as the private sector involvement, or P.S.I.
A few months ago the deal looked doable, as the large European banks that held must of this debt, estimated to be around €200 billion, recognized that it was probably a better alternative than default, which could cost them everything. Moreover, the banks were sensitive to political pressure from their home countries, where they have a big stake in remaining on good terms with the government and key officials.
But as the talks have dragged on, many of these banks, especially big holders in France and Germany, have sold their holdings. Among the buyers have been hedge funds and other independent investors who are now questioning why they should accept a loss, known as a haircut, if, as it turns out, the deal remains voluntary in nature and Greece keeps paying interest on its debt.
And as the number of such hedge funds holding Greek debt has grown, so has their ability to forestall a restructuring agreement, thus bringing them closer to being able cash in on their high-stakes gambit.
“They are calculating that Greece will not default before March,” said G.Mitu Gulati, a sovereign debt expert at the Duke University School of Law and a co-author of a recent paper on the intricate dynamics of the debt restructuring process in Greece.
Mr. Gulati points out that it is these investors that are in many ways behind the delay in getting a deal done. “If you own a bond that matures in March and it is January then you have every incentive to delay,” he said.
Expected to lower Greece’s borrowing expenses by as much as €100 billion through 2014, and to reduce its ratio of debt to gross domestic product to 120 percent by 2020 from about 143 percent today, the P.S.I. represents a crucial pillar of the €199 billion in financing that Greece will need from outside sources in the next three years.
The German chancellor, Angela Merkel, the most vocal proponent of requiring some sacrifice on the part of private-sector lenders, has been the most forceful political leader in pushing for a resolution. Mrs. Merkel was meeting with Christine Lagarde, the managing director of the I.M.F. in Berlin on Tuesday night, with Greek debt expected to be high on the agenda. Ms. Lagarde was then to meet Wednesday with the French president, Nicolas Sarkozy, in Paris.
In fact, bankers say that some within the I.M.F. are pushing for an even steeper loss to be imposed on investors, reflecting a sense within the fund that Greece’s debt position has become unsustainable, even with a 50 percent cut in the value of its existing debt.
The trade-off is a risky one. Outside of the default risk, Greece and Europe may well be able to insert provisions into a P.S.I. agreement that would prevent the free riders — as the hold outs are sometimes called — from receiving their bond payment at all. As the old bonds are governed by Greek law, such procedures are an option.
In this vein, Greece has taken steps to retroactively insert collective action clauses into the bond contracts. These give the debtor the right to impose a restructuring on all creditors, including holdouts, once a certain majority is reached.
But some analysts see this move as toothless because, if it comes down to a majority vote of bondholders, the deal would no longer be seen as voluntary — thus activating credit-default swaps, requiring compensation to those who bought such insurance against default on the debt, a move that Europe and Greece are desperately seeking to avoid.
The other option is for Europe and the I.M.F. to kick in more money to make the exchange more palatable. That would provide a carrot to the holdouts, but perhaps at the cost of fueling even more opposition in Greece to the bailout and its onerous terms for the Greek public.
The bonds in question are trading at around 40 cents on the euro, a significant premium to the longer-dated securities that trade at around half that level, reflecting a market view that over the long term Greece will probably default.
A chunk of the bonds mature on March 20, when Greece must come up with €14 billion, a payment it will not be able to make without aid.
In a recent report, JPMorgan Chase estimated that as much as €80 billion in Greek bonds was now owned by independent investors, including hedge funds, sovereign wealth funds and other asset managers.
While the bankers’ lobby that represents the creditors, the Institute of International Finance, has said that it expects enough creditors to agree to the deal, it is not clear how much sway the body has over institutions that are inclined to reject the terms, especially hedge funds looking to make a quick profit.
Already two outfits, Talanx, a German insurer, and Vega Asset Management, a hedge fund based in Spain, have publicly opted out. If many more join them, Greece may fail to secure the restructuring agreement that a few months ago seemed so close to success.
http://www.nytimes.com/2012/01/11/b...reek-bailout-arrives.html?partner=rss&emc=rss
..di la sono impegnato con i TDS anche se non da paragonarti per mole di lavoro
...ci candideremo al wall street journal.
sempre in bocca al lupo a tutti voi
