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Banks Agree to Sell Back Some Greek Bonds

December 9, 2012 by Leave a Comment

The buyback, which aims to trim about 20 billion euros, or nearly $26 billion, from Greece’s 323 billion euro debt, was scheduled to close at the end of the day on Friday. But people involved in the transaction said they did not expect an official announcement of the results until early next week.

Greece’s so-called troika of international overseers has said meaningful participation by bondholders in the buyback program will be crucial to the release of more than 40 billion euros in the next installment of bailout loans. The country desperately needs those loans to recapitalize its banks, service the interest on its debt and pay billions of euros in bills.

“It looks as if they will hit the higher range of their expectations,” said Dimitris Drakopoulos, a sovereign debt expert at Nomura in London.

Bankers involved in the transaction say it is too early for Greece to declare victory in the buyback. Given the political and financial sensitivities involved, they say, last-minute snags are still possible.

“It is not done until it’s done,” said one banker involved in the transaction, who spoke on condition of anonymity. “But I am reservedly optimistic.”

The better-than-expected participation of hedge funds, which bankers say have sold 50 to 70 percent of their 24 billion euros in bonds, together with the involvement of the banks, have increased the chances that the buyback will succeed.

The Greek banks are one of the larger groups invested in the country’s bonds. They hold 17 billion euros of the 63 billion euros in private sector debt that is in circulation after Greece’s most recent debt restructuring.

That write-down was overseen by the troika that determines when and if Greece receives each round of bailout money: the European Commission, the European Central Bank and the International Monetary Fund.

The combined participation of Greek banks and foreign investors could be enough to reach the goal of 20 billion euros in net debt reduction that Greece and the troika set for the buyout. To reach that goal, Greece would need to buy back bonds worth 30 billion euros in face value because the country has borrowed 10 billion euros from Europe to conduct the buyback program.

The I.M.F. has said it will provide additional bailout loans to Greece if the buyback is successful and the country continues to reduce its debt toward sustainable levels.

Analysts say that while many hedge funds indicated that they might hold out for a higher price, tough talk by government officials and bankers persuaded many investors to take profits now, rather than risk having to absorb losses later.

Since the government announced on Monday a price range of 30 to 40 cents on the euro, the bonds have increased in value, hitting a high of 35 cents late this week. Investors say the increased demand is coming from buyers who think the bonds will push even higher once the buyback is complete and Greece’s financial position improves.

“We are seeing a lot of real money buying these bonds now,” said one large investor who had participated in the exchange. “I am not surprised. Things are finally improving in Greece.”


Article source: http://www.nytimes.com/2012/12/08/business/global/greek-banks-sign-on-to-bond-buyback.html?partner=rss&emc=rss

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DealBook: Hedge Funds Scramble to Unload Greek Debt

January 25, 2012 by Leave a Comment

So much for that big fat Greek payday.

Hedge funds that in the last month or so have purchased an estimated 4 billion euros ($5.2 billion) of beaten down Greek bonds that mature on March 20 are now trying to unload their positions, according to brokers and traders.

That is because it is becoming clear to one and all that Greece — under pressure from its financial backers — is preparing to impose a broad-based haircut that would hit all investors with a loss of 50 percent or more, whether they agree to the deal or not.

The problem is that while buying the bonds over the last few months was easy, as many European banks were unloading their positions, getting out now is proving to be near impossible. Liquidity has dried up and investors are avoiding Greek paper as if it were the plague.

The poor outlook for early maturing Greek bonds was compounded on Wednesday when Christine Lagarde, managing director of the International Monetary Fund, said the public sector might have to participate in a restructuring deal with private sector creditors.

“There was a lot of volume going in, but not a lot going out,” said one broker, speaking on condition of anonymity. The broker said prices for March 2012 bonds had slipped to around 35 cents on the dollar from a range of 40 cents to 45 cents.

Starting in December, the counterintuitive, go-long Greece bet was one of the more popular pitches made to funds in New York and London.

Investment banks — Merrill Lynch was particularly aggressive in recommending the trade, investors say — argued that even though Greece was near bankrupt, those who bought the paper maturing in March could double their money when Greece received its latest bailout tranche due that month. The bulk of that tranche would be paid to bondholders to keep Greece solvent, just as was the case with past payments from the European Union and the International Monetary Fund.

Greece might well restructure its debt, brokers said, but added that was likely to happen later and would not affect the March payout.

Brokers estimate that of the 14.5 billion euros of these bonds outstanding, the largest holder is the European Central Bank, which bought these securities in 2010 at a price of around 70 cents in an early, ultimately futile attempt to boost Greece’s failing bond market. The brokers say that 4 billion to 5 billion euros of bonds are owned by hedge funds at an average cost of around 40 cents to 45 cents, with some of the larger positions being held by funds based in the United States that have large London offices.

Now, with momentum building in Europe for an agreement on a 50 percent-plus haircut to be reached before March 20 — one that would be legally binding on all holders — the smart money is not looking so smart anymore.

“It was a very binary trade,” said one hedge fund executive who listened to the pitch but took a pass. “If you got paid, you double your money in a month. But you may also look like an idiot.”

Article source: http://feeds.nytimes.com/click.phdo?i=3483c8f5ddd5aa485e27c01e8bc2e6a8

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Awaiting a Greek Payout

January 11, 2012 by Leave a Comment

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. That is when Athens hopes to receive a potentially make-or-break bailout payment — a lifeline of as much as 30 billion euros ($38 billion) from the European Union and the International Monetary Fund.

Greece’s new prime minister, Lucas D. Papademos, has warned that without that infusion, his country might well default on its debts, a move that might force Greece to leave the euro currency union.

So even though Greece is already effectively bankrupt, some investors are buying and holding the country’s short-term debt — gambling that, at least in March, Athens will make a point of paying its creditors. The risks those investors run, though, include the possibility that their very actions could help prompt the European Union and I.M.F from handing Greece the March bailout installment that would enable Athens to pay make those debt payments.

With the stakes so high, investors are betting that Europe will go the extra mile to keep 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 those investors 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 — its bondholders that are not other governments — that it is in their interest to exchange their existing Greek bonds for longer-term securities, while accepting about a 50 percent loss as part of the bargain. The negotiations are known as the private sector involvement, or P.S.I., to employ the widely used shorthand.

A few months ago such a deal looked doable, as the large European banks that held most of this private sector debt, estimated to be about 200 billion euros, recognized that it was probably a better alternative than a default by Greece, which could wipe out their holdings. Moreover, the banks were vulnerable to political pressure from their home countries, where they have a big stake in remaining on good terms with the government and important 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 London hedge funds and other independent investors that are now questioning why they should accept a loss — if at least in the short run Greece keeps meeting its debt payments.

And as the number of such hedge funds holding Greek debt has grown, so has their ability to forestall a restructuring private sector 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 Mitu Gulati, a sovereign debt expert at the Duke University School of Law and a co-author of a recent paper on the 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 executing a private sector involvement. deal. “If you own a bond that matures in March and it is January, then you have every incentive to delay,” he said.

Yet private sector involvement could prove a crucial component of the set of provisions that Greece must meet to receive its next lifeline payment from Europe and the I.M.F.

The private sector loss agreement was expected to lower Greece’s borrowing expenses by as much as 100 billion euros through 2014. The agreement was also supposed to reduce Greece’s ratio of debt to gross domestic product to 120 percent by 2020, down from about 143 percent today. In short, the private sector involvement represents a crucial pillar of the 199 billion euros 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 of the negotiations. Mrs. Merkel met with Christine Lagarde, the managing director of the I.M.F., in Berlin on Tuesday. They issued no statement, but aides said Greek debt was high on the agenda. Ms. Lagarde was then to meet Wednesday with the French president, Nicolas Sarkozy, in Paris.

Article source: http://www.nytimes.com/2012/01/11/business/global/hedge-funds-the-winners-if-greek-bailout-arrives.html?partner=rss&emc=rss

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European Banks Are Hard-Selling Greek Bailout Plan

September 2, 2011 by Leave a Comment

But in the case of the proposed second bailout for Greece — the one that is supposed to make private investors feel the financial pain along with taxpayers — the biggest banks in Europe are on the road now promoting the plan.

It’s not that the banks are suddenly masochists. It’s that this first major bond restructuring in Europe’s long-festering debt crisis is shaping up as a much better deal for the banks than for the Greeks it is supposed to be helping.

Holders of the Greek bonds would get much better value than they could in the open market, while Greece would still owe a lot of money. What’s more, Greece would be surrendering a lot of its negotiating clout if, in the future, it needed to go back to the bailout bargaining table.

This week, bankers representing the Greek government — Deutsche Bank, BNP Paribas and HSBC — have been explaining to investors why it is in their interest to trade in their decimated Greek bonds, take a 21 percent loss and accept a new package of longer-dated securities with AAA backing. Those bondholders include big European banks, smaller fund managers and insurance companies.

The bond exchange is a crucial component of the more than 200 billion euro ($286 billion) in rescue packages that Europe and the International Monetary Fund have put together to support the near-bankrupt Greek economy through 2014. The German chancellor, Angela Merkel, and others insisted that banks make such a contribution to give them some political cover at home.

The part of the rescue announced in July is subject to the approval of Germany and the governments of the 16 other member nations of the euro union in coming weeks. If investors balk at the 21 percent write-down that is the price for getting a deal done, the whole package could collapse. European governments would be hard-pressed to come up with those extra funds themselves.

But with the price of Greek debt trading in some cases at 50 cents on the dollar — even lower than when the bailout deal was announced in July — the 21 percent haircut seems to be quite a bargain.

As a bonus, the new bonds would be governed by international law, rather than Greek law. That is a significant alteration of lending terms that would strengthen the negotiating hand of the bondholders if Greece eventually concluded it had no alternative but to default — even after this latest bailout.

The International Institute for Finance, the advocacy group for global banks that is also the chief architect of the deal, says that 60 to 70 percent of the financial institutions holding Greek bonds have agreed to the swap so far. That comes close to the 90 percent threshold that the Greek government has stipulated, although it is too early to predict the final outcome because Greece will not formally make the swap offer until October.

“This is an attractive offer,” said Hung Tran, a senior executive at the institute. “We are making the case that if this deal is implemented it will restore stability to Greece.”

The question remains, however, whether the banks that financed the country’s debt by buying its bonds would get off too easy — and whether the Greek government should have pushed for a larger write-down to ease its debt load.

Analysts also note Greece’s diminished bargaining power in any future debt negotiations with its bankers.

In past debt negotiations involving countries like Argentina, Uruguay and Russia, the bulk of the debt was governed by either United States or British law. That gave the biggest bondholders the upper hand in negotiating terms; they could either hold out for a better deal or challenge the governments in foreign courts.

In the case of Greece’s debt, more than 90 percent of it was issued and is governed under Greek law, as a holdover of the era preceding Greece’s entry into the European monetary union in 2001. That, legal experts say, currently gives the Athens government the flexibility, if it so chooses, to alter bond contracts and secure a more beneficial restructuring deal over the objections of its foreign creditors.

Article source: http://feeds.nytimes.com/click.phdo?i=541e4a62077588bda472ee0befa3a4df

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DealBook: Lehman Bankruptcy Takes Big Step Toward an End

August 30, 2011 by Leave a Comment

Lehman Brothers’ headquarters in New York on the day it filed for bankruptcy in 2008.Mark Lennihan/Associated PressLehman Brothers’ headquarters in New York on the day it filed for bankruptcy in 2008.

A federal bankruptcy judge has blessed a plan by Lehman Brothers’ bankruptcy estate to pay out about $65 billion to creditors, in a major step to wind down the investment bank.

The approval by Judge James M. Peck of the federal bankruptcy court in Manhattan, who has overseen Lehman’s Chapter 11 case, paves the way for a vote by creditors sometime this fall.

Begun on Sept. 15, 2008, the Lehman bankruptcy case touched off the financial crisis that reshaped the banking landscape. Since then, the estate has sold off significant portions of the firm’s business and assets, seeking to recover some money for scores of institutions around the world.

The labyrinthine disclosure statement — months in the making — followed months of clashes between Lehman and its bondholders and other institutions to which the firm owes billions of dollars.

Lehman revised the scheme several times in order to earn the support of several major creditors, including Paulson Company, Elliott Management and Goldman Sachs.

Lehman’s disclosure statement for the plan will be sent to the estate’s 110,000 creditors, who will have 60 days to vote. A confirmation hearing is scheduled for Dec. 6, pending approval by creditors.

Lehman has said that it hopes to begin paying creditors by early next year, more than three years since it sank into bankruptcy. That is pending the shareholder vote and meeting certain financial milestones.

Final revisions to the disclosure statement came in as late as Tuesday morning, when lawyers for Wells Fargo agreed to drop objections to the plan. But other creditors, including the Bundesbank and the hedge fund Centerbridge Partners, still had objections.

Judge Peck overruled those objections for now, saying that they would be heard in the confirmation hearing.

He called the disclosure agreement’s approval “an extraordinary and noble achievement,” and said that the lawyers on both sides had done work that “borders on miraculous” by bringing major groups of creditors into agreement on a plan.

Lehman Brothers’ motion

Article source: http://feeds.nytimes.com/click.phdo?i=c7eb57b52f712ec2df04056976896ceb

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Economix: On Debt Talks, a Lose-Lose-Lose-Lose Situation

July 25, 2011 by Leave a Comment

DESCRIPTIONEndemol/NBC Universal Sorry, Howie Mandel: Deal or no deal, the American economy probably still loses.

1:07 p.m. | Updated with a fifth (less likely) scenario.

Almost whatever happens this week with Washington’s debt talks, the economy will most likely be worse off.

As Dean Maki, the chief United States economist at Barclays Capital, put it: “The basic issue is that the U.S. is on an unsustainable fiscal track, which is pretty widely agreed upon. From that point, none of the choices are fun.”

CATHERINE RAMPELL

CATHERINE RAMPELL

Dollars to doughnuts.

Here are the likely scenarios I see:

1) Held up by disputes over how to reduce deficits, Washington doesn’t raise the debt ceiling in time. As a result, the Treasury stops paying debts it owes.

If that happens, the rating agencies downgrade the United States’ debt. The cost of borrowing for the United States government shoots up, since lenders demand higher interest rates from borrowers that are less trustworthy. Many other interest rates are pegged to the cost for the United States to borrow, making interest rates on all sorts of other loans, like mortgages, rise too. Credit markets freeze up, crushing an already-feeble economic recovery.

Macroeconomic Advisers predicts that failing to raise the debt ceiling in time — even if the delay is only one month — will very likely result in a new recession. And because it’s more expensive for the United States to borrow, the United States debt gets even larger, the exact opposite effect from what fiscal hawks are hoping for.

2) Held up by disputes over how to reduce deficits, Washington doesn’t raise the debt ceiling in time. But rather than default on its debt, it diverts money from other spending into paying back bondholders.

That could mean that Social Security checks are not sent, soldiers in Afghanistan and Iraq are not paid, and all sorts of other consequences.

In addition, bond markets might still freak out because the threat of default remains, so interest rates could rise anyway and cause all the terrible consequences in Scenario No. 1 (potential second recession and even bigger federal debt).

3) Washington comes up with a deal to raise the debt ceiling, but it amounts to less than $4 trillion in savings.

Standard Poor’s has said that just raising the debt ceiling is not enough; without a “credible” plan for at least $4 trillion in savings, the United States might still have its credit rating downgraded. That could, again, mean higher interest rates and all the other terrible consequences of Scenario No. 1.

4) Washington comes up with a deal to raise the debt ceiling that amounts to more than $4 trillion in savings over a near-term horizon.

The credit rating agencies are appeased, but such severe austerity measures put the fragile economic recovery at risk. The states in particular are anxious about what major spending cuts mean for them and for the many social safety net services they provide with federal support.

As Bruce Bartlett and others have written, similar fiscal tightening during a fragile economy happened in 1937. Those actions resulted in a severe second recession and prolonging of the Great Depression, partly because it was coincident with monetary tightening as well. While a sharp, sudden monetary tightening seems unlikely, the Fed is at the very least pulling back on its easy monetary policy with the end of its second round of quantitative easing.

As The Wall Street Journal’s Kelly Evans observed, Japan had a similar experience in 1998, when austerity measures were followed by a recession and a widespread sell-off of Japanese bonds.

And even if these likely American austerity measures don’t result in an outright recession, job growth is already so feeble that most Americans still think we’re in recession.

Imagine how terrible things would feel if the economy slowed down even further.

5) Washington comes up with a deal to raise the debt ceiling that amounts to more than $4 trillion in savings, but over a longer-term horizon.

This is the best-case scenario: It deals with the long-term unsustainability of the country’s fiscal arrangements — which is good for growth in the long run — but doesn’t rock the boat in the current economic recovery.

Unfortunately, it also seems to be the scenario that is least likely to be pulled off effectively.

Economists want spending cuts and/or tax increases that come after 2012, when the economy is expected to be stronger. But to use Standard Poor’s lingo, cuts that take effect in 2012 may not be fully “credible.” Committing to future cuts/tax increases is just another way of kicking the can down the road, as Washington has been doing for decades now. Almost every time Congress promises painful fiscal measures at some future date, later politicians jump in to dismantle them just before they take effect.

“We do seem to have a time-consistency problem,” Mr. Maki said. “There does never seem to be a good time for major cuts, and they’re not going to be more popular five years from now versus now.”

He says that Congress must come up with a way to prove that these are cuts that will actually happen, versus something that’s on the drawing board and is therefore erasable.

Unfortunately, he says, “There is no way to completely tie the hands of future legislators.”

Article source: http://feeds.nytimes.com/click.phdo?i=5b05fc9011a78b54005b4978d1896edc

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Greek Finance Minister Moves From Crisis to Crisis

July 6, 2011 by Leave a Comment

No sooner had he presided over the close passage of a new austerity bill last week, than he was contending with the growing controversy over how much money private banks would contribute by taking on more Greek debt.

And as he prepared to travel to Berlin on Wednesday to make the case to Germany’s finance minister, Wolfgang Schäuble, that Greece could fulfill its end of the bargain, Europe’s assistance was just one of the challenges that lay before him.

“This is a problem for not just Greece and Europe but for the global economy,” Mr. Venizelos said as he sank into a chair in his office late Tuesday evening.

His face was slightly pale and his eyes tired — the consequence of a relentless work pace that takes him from arm-twisting stubborn party members to support the government’s program to leading tense negotiations with Greece’s creditors in Europe.

Outside his office, protesters camp out in Syntagma Square, many criticizing the tough policies that will result in 120,000 public sector workers losing their jobs in the next three years.

Mr. Venizelos acknowledges the deep strains that austerity has brought to Greece, but he argues that in spite of the rising anger there is little appetite for new elections and a change of government.

“Yes, we have protesters on the streets, but according to the polls, the big majority of popular opinion reject the idea of early elections,” he said.

In the eyes of many, though, the Greek government’s task is a fruitless one. Greece must raise 172 billion euros by 2014 — of which 85.6 billion euros will go to paying off bondholders.

In Berlin on Wednesday, Mr. Venizelos will make the case to his European partners that via an aggressive privatization program and other reforms — like opening up closed professions as varied as truck drivers, lawyers, beekeepers and lifeguards — Greece can return to growth in 2012.

Mr. Venizelos also has the tall order of carrying out the measures. “I have no problem about the implementation,” he said. “The problem is the financial stabilization and also the behavior of the different international factors, because we have some asymmetric threats,” he added, referring to the ratings agencies that are watching his government’s every move and every figure in its balance sheets.

Unlike his predecessor, George Papaconstantinou, who was made environment and energy minister in a cabinet shake-up last month, Mr. Venizelos has the role of deputy prime minister, which allows him to convene cabinet meetings at his request.

But the program, which relies heavily on increasing value-added taxes and the levies that Greeks will have to pay on their houses and private boats, in addition to cuts in pensions and public sector wages, remains deeply unpopular in Greece — and the political tension is growing.

Last week, the center-right New Democracy opposition party, which was in power when Greece went off the debt cliff, voted down the austerity measures, saying they offer too many tax increases and not enough stimulus, although the party says it supports the privatization plan and spending cuts.

Instead, the opposition is proposing tax cuts in order to increase growth and incentives to cut down on tax evasion — hoping that Greece’s foreign lenders will come around to the idea that raising taxes in a recession will curb growth.

“It’s not two competing programs. One will fail in the next few months,” Chrysanthos Lazarides, an economic adviser to the opposition leader Antonis Samaras, said in an interview at the New Democracy party headquarters on Tuesday.

Article source: http://www.nytimes.com/2011/07/06/business/global/06greece.html?partner=rss&emc=rss

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Weak Economic Data Belies British Optimism

June 16, 2011 by Leave a Comment

“The British economy is recovering,” Mr. Osborne said to a room full of London’s financial elite. “Half a million new private sector jobs have been created and our budget deficit is now falling from its record highs. Stability has returned.”

The chancellor’s state of the economy speech is an occasion of politesse and ritual held annually at the 18th-century residence of the lord mayor of the city of London. The guardian of the British economy sets out the government’s financial strategy, and bankers and fund managers, who are now largely responsible for financing Britain’s swollen budget deficit, tend not to disagree.

As the weaker economies in the euro zone have flirted with bankruptcy, British bonds have performed well, acting as a haven of sorts despite the fact that the budget deficit, at 10 percent of gross domestic product, is about the level of Greece’s.

That Britain is not in the euro zone and can depreciate its currency to increase exports has been a crucial contributor to investor confidence. Perhaps even more so, however, has been the public campaign waged by Mr. Osborne to persuade voters and bondholders alike that Britain can return to the path for long-term growth only by cutting government spending.

But as growth numbers continue to disappoint, Mr. Osborne’s job is becoming more of a challenge.

On Wednesday, data released by the government revealed that the number of people seeking unemployment benefits jumped by 19,600 in May compared with the month before, a two-year high that reflects the continuing reluctance of employers to hire as growth stagnates.

Not all was bad in the report. The unemployment rate held steady at 7.7 percent, as Mr. Osborne pointed out Wednesday night. But the increase in the number of job seekers, together with signs that wages were not expanding, is the latest evidence that the economy is stuck in a rut.

The Organization for Economic Cooperation and Development, a multinational research group based in Paris, recently lowered its forecast for British economic growth to 1.4 percent for this year. Even the International Monetary Fund is projecting a sickly rate of 1.5 percent. These projections, along with many by investment banks in London, are lower than the government’s official forecast of 1.7 percent for this year.

“Mathematically, I just do not see where growth is going to come from,” said Tim Morgan, head of research at Tullett Prebon, a brokerage firm here. He said that past sources of growth, like real estate, construction, health and education spending and financial services, were showing no sign of recovery.

As a result, he contended, Britain was unlikely to grow by more than 1.5 percent a year in the near future. “And without growth, there is no tax revenue,” he said. “Debt and deficits rise, as does the cost of servicing Britain’s debt, and you then come to a point when the credit agencies begin to look at a downgrade.”

For an economy that is dependent on the public markets, and on foreign investors in particular, to finance its borrowing, such a possibility would represent a Greece-style disaster.

In his speech on Wednesday, Mr. Osborne touched on this concern. He said that the economy continued to face stiff challenges, and that the stagnant banking sector was hampering growth. “Our banking system fueled the boom,” he said, “Now it is slowing the recovery from the bust.”

Mr. Osborne endorsed proposals that would require banks to hold more capital and partly shield consumer operations from investment banking. The proposals, which would most likely increase operating costs for banks, were initially made in an interim report by the government-backed Independent Commission on Banking in April.

Mr. Osborne’s backing makes it more likely that the rules, which include a so-called ring-fencing of consumer deposits from potential losses at investment banking operations, would be made law. That would put Britain ahead of the United States in pushing through changes to separate more clearly the traditional deposit-taking services from the riskier but more lucrative trading operations.

Mr. Morgan’s more alarmist views about the economy are not widely held at this point. With bond yields at 3.2 percent, comfortably below those of the weaker European economies, such a crisis, if it comes at all, is by no means imminent.

All the same, Mr. Morgan is not alone in warning that the battle to reduce Britain’s debt and deficits is hitting a wall. Morgan Stanley, in a more restrained report, said that the government’s growth forecasts were optimistic. It also pointed out that the real level of debt, at about 70 percent of gross domestic product, may be understated owing to another trillion pounds worth of unfunded pension liabilities. Funds backing Britain’s bailed-out banks are also not included in official figures.

For now, however, investors seem inclined to give Mr. Osborne and the government the benefit of the doubt.

In his speech on Wednesday night, Mr. Osborne emphasized how, in a world of declining debt ratings, Britain still maintained its AAA rating.

“We have a deficit larger than Portugal, but virtually the same interest rates as Germany,” he said. But if growth continues to disappoint, that may no longer be the case.

Article source: http://feeds.nytimes.com/click.phdo?i=72d2e472e33de453cb49cc0485936138

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Agency Cuts Greece’s Debt Rating Again

June 13, 2011 by Leave a Comment

The downgrade comes at a particularly awkward time for Greece. The government is attempting to persuade legislators to accept a fresh set of austerity measures. At the same time, Germany, the dominant economy in the 17-member euro zone, is proposing that private sector bond holders accept some form of a loss on their Greek bonds as a condition for a broader rescue package for Greece that could approach 100 billion euros.

While one more downgrade for Greece is unlikely to change matters much, it does put some more pressure on the Germans who have been facing pressure from the European Central Bank to not restructure Greek debt.

In its press release, SP said that its downgrade reflected the reality that any form of debt exchange — whereby bondholders would trade their shorter-term debt for longer-dated paper — would be seen as harmful to creditors and thus, in the eyes of SP, would be equal to a default. SP said if that it occurred, Greece’s rating would reach the level of D.

The ratings agency also mentioned the continuing depths of the Greek economic slump, pointing out that unemployment rate was now at 16.2 percent. Greece has financing needs of close to 160 billion euros through 2014. Given these steep requirements and the difficulties the government is having in pushing through its austerity package, SP concluded that some form of restructuring is now more likely than not.

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Unease About Greece Grows as S.&P. Downgrades Its Debt Again

May 10, 2011 by Leave a Comment

Standard Poor’s downgraded Greece’s debt once again, and Moody’s Investors Service put its rating on review for downgrade, compounding pressure on the government as it seeks to come up with a solution shy of a debt restructuring, including privatizing state enterprises, though there is resistance to that step.

Analysts and investors said they did not see how Greece could get its debt under control when output is slumping and there is little sign that efforts to restructure the economy are bearing fruit.

“Austerity is fine, but what you really need is investment and growth, and we just don’t see that,” said Jonathan Lemco, a sovereign credit analyst at Vanguard, the mutual fund company.

S. P. lowered its rating to B from BB –, reducing Greece to the same creditworthiness as Belarus, the lowest-rated countries in Europe. In a statement, S. P. noted increasing sentiment among governments in favor of giving Greece more time to repay 80 billion euros ($115 billion) in loans from the European Commission. But the commission would probably insist that private bondholders also accept slower repayment, S. P. said.

Even if creditors eventually get all of their money back, S. P. said, “such an extension of maturities is generally viewed to be less favorable to commercial creditors than repayment according to the original terms of the debt.”

The Greek government accused S. P. of responding to market and news media speculation.

“There have been no new negative developments or decisions since the last rating action by the agency just over a month ago,” the Ministry of Finance said in a statement. The downgrade “therefore is not justified.”

European political leaders as well as the European Central Bank have ruled out any kind of restructuring of Greek debt, saying it would undermine confidence in other countries like Portugal and Ireland and potentially create panic in financial markets. The strategy so far has been to play for time, in hopes that the economies of Greece, Portugal and Ireland will recover and make it easier for them to cope with their debts.

In Greece, the government is under pressure from its foreign creditors to raise money by privatizing state enterprises, but it is facing fierce opposition from powerful labor unions and critics within the governing Socialist party itself.

A program that is expected to go before Parliament next week is ambitious. It would authorize the selling of stakes in three utilities, the Greek railway, the racetrack and the national lottery. Also up for sale or lease are assets like disused facilities built for the 2004 Olympic Games and the site of the capital’s former airport, which the government of Qatar has expressed an interest in developing.

In all, the government hopes to raise 50 billion euros ($72 billion) by 2015 to help avert a default, although many analysts consider that figure to be overly optimistic. By pressing ahead, the government is seeking to demonstrate its resolve in meeting the terms of its bailout.

Indeed, representatives of the International Monetary Fund and the European Union are back in Athens to decide whether to release the next installment of the emergency loan package, estimated to be 12 billion euros. The fact that the Greek budget deficit for 2010 was revised upward, to 10.5 percent of gross domestic product from an estimated 9.5 percent, suggests that inspectors will be particularly strict this time.

Greek officials acknowledge in private that they may miss fiscal targets set by the I.M.F. because of a deeper-than-expected economic slump. In 2013, Greece will be required to raise as much as 30 billion euros ($43 billion) from the debt markets.

The government insists the privatizations will not be derailed.

“Commentators have doubted the Greek government’s resolve at every juncture of the crisis, and in each case the government has proven them wrong,” George Petalotis, a spokesman for the government, said in a statement.

The Greek labor unions, however, are determined to stop the sales, fearing that private ownership will lead to job cuts. They are lining up a barrage of protests, starting with a one-day general strike on Wednesday.

At the front line is Genop, the union representing workers at the Public Power Corporation, the state electricity company. Genop has threatened rolling strikes that could cause prolonged power reductions across the country just as the summer tourist season begins.

Niki Kitsantonis reported from Athens, and Jack Ewing from Frankfurt.

Article source: http://www.nytimes.com/2011/05/10/business/global/10privatize.html?partner=rss&emc=rss

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