‘Greece Pays Finland Collateral Money,’ goes the Bloomberg headline.
Well, that’s broadly true we suppose. Technically, Greek banks which cannot be named have transferred €311m of Greek government bonds which then moved into the custody of an international investment bank which cannot be named which (at some point) will sell them, put the revenues in safe assets, and release the collateral to the Finnish government if Greece does things which cannot be named to its EFSF bailout loans of which Finland provides a portion. (Finland pays a fee as part of its end of an exchange of cash-flows.)
‘Agreement on the collateral is executed according to plan,’ Finland’s finance ministry declared on Friday of this first €311m instalment. You can say that again.
But you still cannot know important details of who, what, how, and when this total return swap works.
Ironically enough, this has been made clearer than ever by the Finnish government’s belated decision to release documents containing some details of the swap, but very few at that. We’re indebted to Finland’s Talous Sanomat for publishing them.
Here is the total return swap confirmation (click image for full doc):
And here is a representative page illustrating the granular level of detail in which the documents reveal the terms of the Greek transaction:
There are further frequently blank pages in the Credit Support Annex, Escrow and Custody Agreement, and (mostly intact save for the Schedule) ISDA Master Agreement, which is generic anyway. All via Talous Sanomat.
The government arranged partial disclosure after talking to the mystery banks.
The Finnish government has justified its continued secrecy over the redacted points with this official explanation. It warns that Finland will be left open to claims under English law if it breaches confidential provisions of the collateral agreement. It could lose its rights to the collateral.
Curiously… the government also says that full disclosure would damage Finland’s reputation for cooperation with its eurozone partners. Finland was the only EFSF guarantor to demand collateral from Greece as part of a second bailout. Its policy became highly controversial during the drawn-out bailout negotiations of last year.
Also it says that a confidentiality breach would risk Finland’s standing in financial markets. Ten-year Finnish government bonds currently enjoy one of the lowest spreads to Germany among eurozone sovereigns (some 40bps).