Who’s selling Greek CDS, again

Posted by Tracy Alloway on Jun 17 14:06. 6 comments | Share

Because people still keep talking about this…There appears to have been a massive amount of misunderstanding about recently published BIS statistics regarding US banks’ Greek exposures. The idea that US banks are on the hook for $32.7bn of CDS written on Greece was first expounded by the Street Light blog, More…

Because people still keep talking about this…

There appears to have been a massive amount of misunderstanding about recently published BIS statistics regarding US banks’ Greek exposures. The idea that US banks are on the hook for $32.7bn of CDS written on Greece was first expounded by the Street Light blog, then picked up by us (unfortunately), then spread to Fortune and onwards to markets. This week US bank stocks moved on the concern, apparently.

Anyway, the BIS statistics do not clearly lay out the amount of US banks’ Greek CDS exposure. For why, please click here.

If you want a summary version, here’s Nomura’s new banking analyst Glenn Schorr:

The U.S. banks and brokers sold off yesterday [Wednesday] over concerns around exposure to a potential Greek debt restructuring or default. The concern was driven by a BIS report published this month that shows that U.S. banks and brokers have written $32.7bn of credit guarantees (most likely CDS protection) on Greece. Unfortunately, this number is only half the story, as it shows gross protection written but does not show the net exposure of U.S. banks, meaning that any hedges or collateral that the U.S. banks may have in place is not being captured in this number. While there is definitely some Greek exposure in the U.S. system, we think net exposure at the large U.S. banks and brokers is a whole lot less than the $32.7bn (a Fortune article states that DTCC data shows a Greek default would trigger $5bn in net payments by protection sellers to protection buyers, which would include insurance companies as well as banks).

As for who has definitely been selling CDS (a question that regularly pops up in our inbox whenever there’s a bout of eurozone stress), the last we’ve seen on it was this post from last year. We’ll try to dig around a bit more — but the world of CDS-selling is truly opaque. And, as the above should suggest, it can be very difficult to get a handle on net exposures.

Anyway, Greek CDS has just started trading upfront, according to Markit’s Lisa Pollack, something which can denote a shift in risk perception, and which we haven’t really seen since last April. Meanwhile, bid-ask spreads on Greek CDS are shooting through the roof (left axis) while the actual number of quotes (right axis) have been falling.

As Lisa notes, a declining number of quotes during a period of heavy newsflow is pretty unusual — though the number of dealers actively matching Greek CDS buyers with sellers has been steady at between 13 to 15.

Related links:
US banks seen skirting Greek drama; exposure small – Reuters
Who’s the AIG in this financial Greek tragedy? – Forbes
Who’s selling Greek CDS? – FT Alphaville

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