Sources close to the International Swaps and Derivatives Association (ISDA) reported late yesterday that the organisation was tending to come down on the side of a CDS trigger decision in relation to the restructuring of Greek debt. The Slog understands that the revelation of further subordination by the EIB’s (European Investment Bank) deal has hardened attitudes there. However, although there will be a press release at 5 pm GMT today, this will be a yes or no as to whether to take the question further. A ‘no’ at this stage would leave the Greek deal in the clear as far as CDS triggers are concerned – and represent a major blow to Hedge Funds looking for profit via insurance. A ‘Yes’ is thought to be more likely, but if so ISDA’s European Determination Committee will then need further time to reach a definitive view.
It has been revealed that the EIB is getting a similar exemption from Greek debt writedowns to the euro area’s central bank. Effectively, this is yet another EU institution simply deciding to avert any haircut.
In just under two hours time at 10.20 GMT, we will know how much money Mario Draghi has had to spend plugging the sieves formally known as the private eurobanks. A poll yesterday showed market expectations of a 500bn euro demand, but my conversations with 15 such people last week produced a diferent result: 12 of the 15 sources said they expected the uptake to be much higher.
Banks used the 489 billion euros borrowed at the first LTRO to cover plug debt holes. Draghi says that this time he wants them to lend out the funds to help strengthen economic growth in the eurozone area, but I don’t believe for a second that is what the Italian ECB boss really thinks. To some extent, Fitch agrees with me: it said yesterday that relatively strong European banks would profit from this second splurge of money, but that it was unlikely to drive strong lending growth ‘given weak demand’. I think it’s unlikely to drive growth because barely a single bank has the slightest intention of doing anything except parking it at the ECB and/or finding the fastest route to its own bottom line.
Yes, there is weak demand – because the euro-Greece-default saga has spooked every business investment decision in the EU. If you were going to generate demand, you wouldn’t do it before the Greek thing had been settled: this is merely Draghi’s final push to sandbag as many banks as he can in the time remaining. And don’t forget – the MSM keep calling this ‘cheap money’ but it is also loss-making money for the banks. Banks don’t do loss-making deals unless they are anything from cautious to desperate.