Another way to swap them too?
Interesting fact: Commerzbank’s Greek bond exposure is almost all positioned in maturities after 10 years. Ostensibly, the current IIF financing offer for Greece targets bonds maturing before 2020. No later.
But then Commerzbank has taken a €760m impairment on its Greek bonds anyway. And when we take a closer look (page 64 of the bank’s interim report):
At the emergency eurozone summit on July 21, 2011 the banks and insurance companies agreed to make a contribution to supporting Greece. According to calculations by the IIF (Institute of International Finance), the agreed bond swap will lead to write-down of 21 % on instruments due to mature by 2020. We think that a similar level of impairment is appropriate for longer-dated paper (after 2020; 96% of the bank’s Greek government bonds).
In the Commerzbank Group, the acquisition cost of Greek government bonds before adjusting for the write-down was €3,107m (including accrued interest). Of this, €381m related to available-for-sale bonds (AfS) and €2,726m to securities that were reclassified into the loans and receivables category (LaR) in 2008 and 2009. The write-downs applicable to them as of June 30, 2011 totaled €760m. On the basis of our measurement methodology this resulted in a €565m writedown in the value of securities in the LaR category. The new carrying amount of these securities was therefore €2,162m.
Some quick accounting notes:
Loans and receivables are held at amortised cost under IAS 39, therefore aren’t marked to market. There’s not a lot of detail on “measurement methodology” for LaR, i.e. where the marking to market stops and the marking to model begins. We do observe however that the AFS Greek securities clearly were marked to market prices, with a 51 per cent write-down of €195m. Another related observation: Commerzbank has classified a cool €5.5bn of assets, including public finance and private sector securities, from Level I (market prices) to Level II (prices and modelling). Quite a move.
But back to the decision to apply a 21 per cent cut to maturities, including those beyond 2020. It’s an odd one. That 21 per cent haircut is strictly calibrated to the options within the offer. We’d imagine there’d have to be hefty financial engineering to design options that maintain this haircut for longer maturities if needed.
It’s a very different approach to the likes of Axa and Generali, for example, both of whom will participate in the bond swap and only wrote down exposures maturing before 2020, on that basis.
Then there’s this…
ATHENS -(Dow Jones)- A proposal to swap Greek government bonds maturing in the next nine years for longer-dated securities may be extended to include debt coming due through 2024, a Greek newspaper reports Wednesday, citing disappointing private-sector participation in the scheme…
In fact Kathmerini reported €70bn so far, out of a €135bn target. Guess what we’ve got a pixel time!:
RTRS-GREEK FINMIN SAYS BONDS MATURING A LITTLE LATER THAN 2020 TO BE EXCHANGED AS PART OF BOND SWAP PLAN
Thank goodness Commerzbank will be coming prepared. What else might change in the offer if there are participation issues though we wonder?
Related links:
There are many ways to impair a Greek bond – FT Alphaville
Greek provisioning, SocGen style – FT Alphaville
Ready, set, impair those Greek bonds! - FT Alphaville