Ce contexte spécifique et la liquidité très faible du marché de la dette grecque a conduit le groupe Crédit Agricole S.A. à valoriser, au 30 juin 2011, ces instruments en « mark to model » et à les classer en niveau 3, à l’exception des titres du portefeuille de négociation restés en « mark to market » niveau 1 compte-tenu de leur nature et de leur maturité (inférieure à 6 mois)…
Sorry — the consolidated financial statements to Credit Agricole’s latest results were only published in French on Thursday. Though you’ve no doubt got the gist of “mark to model”. That and Level 3, which is the place where banks can reclassify assets and price them purely through modelling, when market prices (“Level 1″) are too infrequent or illiquid to be observed. There’s also a halfway house, Level 2.
So, first it was BNP Paribas — now it’s Credit Agricole’s turn.
Like BNP Paribas, Credit Agricole is arguing that the Greek bond market has become so illiquid that market prices no longer reflect fair value. Exactly when the bank’s finally writing down fair value ahead of the Greek bond swap, as it happens.
The thing is – BNP and Credit Agricole are the only two banks who argue this. Every other holder writing down Greek bond exposure (Rabobank, Ageas, RBS, Allianz, Axa, Commerzbank, Generali and Societe Generale included) has marked to market in some form.
It usually has been the case that only certain bonds were marked to market, based on their eligibility for the swap, and Societe Generale “corrected” its mark for an “abnormal” yield curve, but at least it’s showing that banks thought there is a market to which prices refer.
In defence of BNP and Credit Agricole, there really is very little trading on the domestic Greek bond market and the yield curve remains dislocated. But that hasn’t stopped other banks.
For example, RBS wrote down its Greek bonds to market values of around 50 per cent less than face value. Importantly however – it added that it could write back value depending on participation in Greece’s bond swap. Remember this swap is supposed to discount bonds by 21 per cent of net present value only and features a 9 per discount rate. It also extends to bonds maturing before 2021.
OK — here’s the Credit Agricole explanation of its modelling (we’re translating it this time):
Indeed, [given] the very low trading volume in recent months and the commitment by banks to the government to retain their bonds, it can no longer be considered that the market prices collected are representative of the fair value of instruments issued. The valuation method used by the Group is different depending on the maturity of the securities:
For securities that mature prior to 31/12/2020, subject to the plan, the valuation model results in a discount of 21% (present value of the securities calculated at a rate discount of 9% compared to that observed for securities of similar maturity) compared to the amount of securities they replace. This discount represents the loss accepted by the group because of the financial situation of the Greek State and corresponds, compared to existing titles, to a waiver of cash-flow.
For securities with maturities greater than 31/12/2020, not included in the plan, the valuation method used is based on an internal model determined by the Group Risk offce, using both unobservable and market components. In the absence of objective evidence that the recovery of future cash flows of these securities is compromised, these securities were not impaired.
So there’s even a bit of Level 2 accounting of post-2020 bonds in there.
Access to Level 3 – seulement pour l’élite.
Related link:
There are many ways to impair a Greek bond - FT Alphaville