Thursday, July 28, 2011

RBS and Santander opt for a 21% to 67% Haircut on their Greek Bonds

The report of the taxpayer owned, British bank RBS, and the high profile but struggling Santander, to accept haircuts on their Greek bonds to further prop up the doomed Euro Currency, comes from SFGate on the West Coast of the USA and is linked here. (Sorry I missed this earlier .... please blame a birthday celebration).

If you are curious as to how come the cost could be as much as 67%, please see the article linked earlier from The Market Oracle, repeated here. I quote:

Let’s see what the "voluntary” debt rollovers will look like and what the likely debt destruction will be. This is from Global Macro Monitor. First, notice that the plan claims haircuts will only be 21%. But that assumes you can sell the new bonds at a 9% interest rate. If the interests rate demanded by the market are 15%, which is closer to reality, the haircuts are closer to 67%, after what appears to be an initial 20% cut. Will any institution not immediately try and get those bonds into the hands of the ECB? This is just ugly."

Also from the same report, is this, on the bailout by Britain's taxpayers of the Bank of Ireland on which I posted last weekend:

If and when the BoI loses its race to stay private, it's the Irish taxpayers who will pick up the tab for an extra 2.65% interest on loans from RBS, along with any other obligations passed on by the private banking sector. Considering these developments and the ongoing effects of current austerity measures, it is difficult to see the Irish people remaining "docile" for much longer. There is only a certain amount of restraint that can be imposed by cultural perceptions before the reality of economic desperation sets in. They are now merely remaining "calm like a bomb", and the fuse on that device has been lit.

Of course, from a British taxpayer's point of view, the extra interest is the premium always required for loans of a riskier nature. A point Greek PM Papandreou, missed when boasting yesterday, to his party faithful, that Greece was borrowing at rates just above those of Germany, the reward for penalty of having sacrificed all national sovereignty and the cold reality that Germany now owns Greece.

This evening, as warned on this blog 24 hours ago, the Cyprus government has resigned and appears likely to be the next Euro Group member to require a bailout.

Meantime the warning from the IMF to France is now receiving coverage in Europe, read here, a quote:

"France cannot risk missing its medium-term fiscal targets, given the need to strengthen implementation of the Stability and Growth Pact and keep borrowing costs low by securing France's AAA rating," the IMF report stated.

With one of the highest overall tax rates in Europe, France's best solution would be to reduce government spending in areas of health care and pensions to meet its medium-term targets, the IMF recommended. They at the same time urged the government to lower the taxes on labour, in an attempt to elevate France's competitiveness and tackle structural unemployment.

Labels: , , ,


Post a Comment

<< Home