At last a good price for the Greek debt!

Claus Regling CEO of EFSF/ESM

Greece and its Eurozone masters once more took by surprise  all and every financial market, by offering a generous buy back price for the country’s outstanding debt held by the private sector, mainly banks, pension funds and speculators. In more details on Monday 3 December the Greek debt management agency (ODHX) announced that Athens calls on the private holders of its bonds to sell them to the Greek Republic at a price range of 30.2% to 40.1% of their nominal value.

The offer will stay open until Friday 7 December. The final price to be paid will be decided after the auction is closed and will depend on the offers received. Until Monday, as it turned out not so well informed sources in Athens were estimating that the price Greece was prepared to pay in this debt buy back operation would be around 30%.

Currently Greek debt can be bought in the secondary market at around 30% and during the summer months this price went as low as 15%. Given that all those who were adventurous enough to buy Greek debt, they can gain within a few months or weeks more than 100% on their bet.

The question is who are those guys bound to make super profits at the expenses of the impoverished Greek taxpayer? As it appears there are two categories of them. The first one is easily to identify. They are the well-known financial market sharks usually undertaking big risks and expecting high returns. In the second category though, a well-informed researcher, will find Greek and other European banks. All of them had being buying Greek bonds during the past few months. Had they known that there will be a buy back at those hefty prices? Who knows?

In any case all those Greek and other European Banks had suffered a deep haircut of 46.5% on the face values of the Greek bonds they held last March at a Private Sector Involvement exercise, agreed to alleviate the Greek debt. On that occasion all major Greek banks had written down so big a part of those assets, that now they have to be recapitalised with bonds and guarantees issued by the European Financial Stability Facility/European Stability Mechanism to the tune of €48.5 billion.

In this way however all present shareholders of those banks will see their participation in the capital of the Greek lenders to be completely diluted. As a matter of fact after recapitalisation, the main shareholders who control the banks and the management will be at the mercy of EFSF/ESM. In comparison the owners and management of the Spanish banks, also to be recapitalised by the EFSF/ESM, are not going to lose grip on their business, despite the fact that they are hundred per cent responsible for the financial woes of their country. On the contrary the Greek bankers are victims of their government’s total failure. Why is that so? Who knows, probably Spain has more bargaining power than Greece, just because Eurozone cannot swallow a Spanish bankruptcy.

Given that, the high buy back price for the Greek debt now paid, seems not to be the outcome of a bargaining effort by the country’s lenders, bound to receive more for the bonds they hold. It is rather the outcome of comparing costs. If the buyback offer was at a lower price, Greek lenders would have needed a lot more in recapitalisation money, again to be paid by the EFSF/ESM. Not to forget that the buyback will be financed by an EFSF/ESM loan to Athens, of around €10 billion.

In short, it is Eurozone and behind it Germany, that does all the billings and always takes the cheaper and less risky options. Is that a drawback? Not at all!