Major French and German financial institutions will be saved billions of euros in payouts if – as expected – the 50pc haircut on Greek government debt does not trigger credit insurance contracts
.German government bad bank FMS Wertmanagement (FMSW) and French insurer Groupama are understood to be among the financial groups with the largest exposures to credit defaults swaps (CDS) written on Greece’s sovereign debt.
Under the terms of CDS contracts, the writer of the insurance must compensate buyers of the protection if there is a “credit event”, the formal term for default.
The eurozoneeurozone bailout package announced on Thursday called for a “voluntary bond exchange” that would require bondholders to accept a 50pc “nominal discount” on the face value of their holdings.
A representative of the International Swaps and Derivatives Association credit determinations panel that is charged with determining whether a credit event has taken place said the agreement was not likely to result in the triggering of CDS contracts because it was a voluntary deal and not explicitly forced on creditors.
This will mean that banks and investment funds that were the largest buyers of CDS protection will have to bear the entire cost of the Greek haircut.
.German government bad bank FMS Wertmanagement (FMSW) and French insurer Groupama are understood to be among the financial groups with the largest exposures to credit defaults swaps (CDS) written on Greece’s sovereign debt.
Under the terms of CDS contracts, the writer of the insurance must compensate buyers of the protection if there is a “credit event”, the formal term for default.
The eurozoneeurozone bailout package announced on Thursday called for a “voluntary bond exchange” that would require bondholders to accept a 50pc “nominal discount” on the face value of their holdings.
A representative of the International Swaps and Derivatives Association credit determinations panel that is charged with determining whether a credit event has taken place said the agreement was not likely to result in the triggering of CDS contracts because it was a voluntary deal and not explicitly forced on creditors.
This will mean that banks and investment funds that were the largest buyers of CDS protection will have to bear the entire cost of the Greek haircut.
The telegraph
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