Would you swap a used bond with this man?

Ignore the pro-acceptance hype: Greece will have to apply CACs

When it comes to finance and dealing with the media, motive is everything. On the whole, the larger bondholders represented by the IIF’s Charles Dallara need the Greek restructure bailout to work. The Hedge Funds don’t. The larger banking institutions can try all they might to create some form of impetus towards acceptance, but this is not like a US election race where some folks want to be with the winner – and thus hype becomes a self-fulfilling prophecy: the media roll being attempted will roll off the backs of the Hedgies like water off a greased duck.

Yesterday we were fed release after release saying these folks have accepted and those folks are coming on board. But the feeling one gets at the end of most media reportage is one of cows voting for vegetarianism.

We’re still hearing nothing from the most entrepreneurial and risk-taking sector: the hedge funds and similar carpet-baggers that are chiefly in this cliffhanger to make something rather than save something. For these people, there are no pro’s and con’s to weigh; merely acute awareness of a fairly transparent attempt to con them into acceptance.

The reason we hear nothing from these shadowy wisps is because that’s the nature of their business. They don’t do joining and soundbites and encouraging noises and bollocks: these people hire pr’s to keep them out of the news, not in it. They have sector representatives to dissemble, to send out disinformation via third parties, and to underestimate their power. To a Hedgie, surprise and discretion are everything.

In the end, therefore, it all comes down to how big a chunk of the bonds they own – is it more than 25%? – what they paid for it, and how sore they are about ISDA and the ECB trying to screw them. The Athenians and the Sprouts don’t know anything for certain about that….in fact, even Mario the great loaves and fishes illusionist can only make educated guesstimates. So call me wacky, but yesterday I sent out some random emails (and phoned the sensible) to test the water, sniff the smoke in the air, and decide whether (a) there is a fire and (b) if there is, can it be put out by Thursday.

My conclusions are yes, and no.

In summary – and this is an over-simplification to a degree, with a consequent margin of error – the signs from Brussels, Berlin and Athens are that things are slow at the moment when it comes to take-up. The Greeks are scared, the Germans sanguine. Washington and the Fed, too, are interested…but my view remains that, so long as the end result is amputation of the Greek Achilles heel, there will be lots of smiling faces in the White House. The more all that feedback came in to Sloggers’ Roost – and the more the Dallara hype began to build – the more convinced I became that the PSI will fail – unless there is a major turnround for some as yet unknown reason or other.

First the IIF announced that their steering committee had approved the deal. This wasn’t exactly news, and then when Deutsche Bank said they’d accepted it too, the feeling of non-news trying to create a wave was overpowering. Confident folks simply wouldn’t be bothering to do this kind of stuff: I mean, who the hell thought Deutsche wouldn’t accept the deal? Then, twelve financial institutions, including ING and BNP Paribas, confirmed participation in the Greek bond swap. BNP Paribas probably begged, rather than voted for, acceptance.

In the Hedgies’ hand are two very encouraging cards. First, Moody’s in particular have gone out of their way to stress that any use of CACs will trigger a default and the associated insurance. I’m fairly certain that both the other main ratings agencies would be of the same view. And second, for the latter part of last week, everyone from Venizelos to Junckermann went out of their way to talk about how ‘enticed’ the hedge funds should be about the deal. Again if they weren’t dependent on the Hedgies to get a result, the eurocrats wouldn’t bother doing that. At one point, in fact, if the deal proved unacceptable, said Junckermann, there was a “plan B”. The Luxembourger had clearly said too much, and Sarkozy et al were then very quick to make Plan B an Unplan B. Finally, if I had a finger for every time today some Greek flunkey or another had said “this is the only deal”, I’d make for a great Freak Show.

“This is the best offer,” Evangelos Venizelos said in a Bloomberg Television interview with Nicole Itano in Athens yesterday. “This is the best offer because this is the only one, the only existing offer.” Ahaa..the only existing one?

It’s all a great deal of protesting, and all a bit too much.

The news media beyond the hype are, on the whole, sceptical about the chances of PSI success. This has been firmed up slightly by poor economic data from Markit on the subject of Spain and Italy. Now the EU, perhaps, cannot afford to lose the restructure deal. My own view remains that a helluva lot of them would be glad to lose it…but not everyone is in the loop…or in the same loop. All the ‘AOK’ flags were being frantically waved by the big institutions and the Greeks yesterday; but there was also some bellicosity – “We’ll issue CACs if necessary”.

One minute bellicose, the next confident, Venizelos has struck me from Day One as the last bloke on earth to inspire confidence in anyone. His own confidence seems to me, overall, to be massively misplaced: ‘people in Athens who are close to the debt swap process’ told the FT last night GMT that they expected CACs would be necessary.

“It is a near-certainty that CACs will be activated after the offer closes on Thursday night,” said one of them. That sums up my own pretty random sample of opinion leaders reasonably well.

But there is one final piece of deduction that convinces me the FT (and the Daily Telegraph) are right, and it is this: no ‘anonymous’ bondholder has asked ISDA for a reading on CACs and the credit insurance trigger. That’s because they don’t need to.

The two questions asked last week had a specific purpose: “If we accept without CACs, will we get our insurance money?” The negative answer came back loud and clear.

Now, if you don’t think you have a snowball in hell’s chance of sabotaging a CAC-free debt swap, why ask those questions? And having done that and got a no, why hold out for CACs if you don’t believe it’ll make any difference?

This default is, at last, going to be declared a default. For me, only one question remains: will the Greeks blink before Thursday, and offer a better deal? Given the timescales now, I can’t see how they could without freaking the Troika into a level of hysterical sanctimony beyond even that they’ve shown to date.

72 hours to go. A default can still be ‘called’ and both the deal and the bailout go ahead. But put yourselves in a pair of Germano-Belgian-American shoes. Apart from acute discomfort in the foot area, what are you going to think?

Me, I’d say “This is our excuse to withdraw the money offer in the interim and spend it on something more useful”….or even “this is where we pop up and start complaining about all those poison pills the Greeks didn’t swallow”. Because you’d just know that you were pissing away 130 billion euros forever.

This gets to annoy a lot of banks and other genuine sovereign lenders…but it doesn’t ruin many (if any) of them – thanks to the Washington/ECB joint ops deal to keep chucking sandbags at everyone.

But as I’ve said all along, what it does do is free up money being desperately demanded by Mario Monti for economic stimulation. Plus, it gives the White House both its amputation and its chance to embrace Greece as a malleable Mediterranean base for the Pentagon.

Stay tuned.