Top of the Greek bond exposure pops [updated]

Posted by Joseph Cotterill on Jun 17 10:48. 19 comments | Share

 Emphasis on the popping. Worth listening to this as you scroll down the below table, compiled by a clearly nostalgic Laurent Fransolet of Barclays Capital…None of the exposure is surprising, More…

Emphasis on the popping. Worth listening to this as you scroll down the below table, compiled by a clearly nostalgic Laurent Fransolet of Barclays Capital…

None of the exposure is surprising, but nice to have it all ranked…

Update — OK, two important points arising from this chart.

First, there’s a story behind every one of these exposures. So, the ‘FMS’ rocking in at number 10 refers to the German bad bank, the FMS Wertmanagement Anstalt des öffentlichen Rechts, now controlling peripheral bond exposures once held by Depfa and Hypo Real Estate. It’s a sovereign exposure. Meanwhile, as Fransolet notes, Dexia’s exposure could be spread across French, Belgian and Luxembourg operations and thus hard to track. Two reasons not to read too much into the parallel BIS cross-border statistics on banking exposure.

(Note though that the above is government bond exposure, not Greek private sector loan exposure! Very important. We’ve already seen that subsidiaries of French banks in Greece have large loan books. Again the BIS stats may not be perfect for considering the credit risk involved. A French loan to a Greek ship company might not be exposed to Greek sovereign problems.)

Fransolet also makes this excellent point:

Beyond the actual holdings of the debt, it is difficult to know the exact details of the various exposures (short or long dated bonds, domestic or international bonds, or loans). For example, we would suspect that the German and French banks’ exposures might be quite different: on the German side, there are probably more long-dated bonds held in asset swap packages, while on the French side, it is more likely to be outright short-dated bond exposures. Overall, it is worth keeping in mind that about one-third of the Greek bonds matures before the end of 2014 (more than €100bn), and that banks would typically have shorter holdings than insurance companies.

That’s relevant to the second important thing here — the concentration of bond holdings which is on display in the table, and what that means for the chances of the holders ‘volunteering’ to roll exposure by buying new debt in the next two or so years. (At pixel time Chancellor Merkel appeared to have conceded that this rollover would be the means of private sector involvement, incidentally.)

Fransolet notes that Greek domestic holders concentrate quite a bit of the debt and would have a ‘natural incentive’ to partake in a rollover. Indeed the types of maturity within the holdings might match up fairly well (BarCap estimate that a third of Greek banks’ bond exposure is short-dated), especially if the sum total rolled over needs to be €25bn-€30bn as part of a bigger bailout package.

Well, that’s true, but it firstly makes this kind of Vienna Initiative-style policy more of a hostage to the European Central Bank’s collateral arrangements than ever. If Greek banks are going to do the donkey’s work in rolling bonds, they’ll have to receive some kind of assurance that they can still pledge bonds at the Bank. Maybe even a special facility separate from the usual eligible collateral framework, Fransolet says. But why should the ECB do that? It never did it for Ireland, where banks are taking down tens of billions of emergency liquidity via the country’s national central bank.

Secondly, it’s the old problem of the Argentine ‘megaswap’ in 2001, where domestic holders were also prominent. They ended up being smoked twice following Argentina’s full suspension of debt payments later in the year.

Also, the big elephant in the room regarding rollover is the ECB’s own Greek holdings. They’re number one in that table. The ECB legally can’t roll them, because there’s no way it would be allowed to buy debt in the primary market, at auction, without breaking Article 123 of the EU Treaty. Funny, a programme meant to restore liquidity in Greek bonds has ended up wrecking them.

Funny, since if FT Alphaville didn’t laugh, we’d cry.

Related link:
The humble Greek depositor, and the ECB – FT Alphaville

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