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Thursday, 15 March 2012

fundblogiconBy David Cooper, Fund Advisers Europe

Yesterday Greek leaders welcomed news that they had managed to erase a third of their national debt by exchanging €177.3bn in privately held Government issued bonds for new debt instruments.

This is in the face of the coming debt deadline of the 20th March, when their next payment was due to be made against the now restructured bonds.

So if you held these Greek bonds, say in your company pension scheme, what does this restricting actually mean to you?

Bluntly, you have lost money.

The Greek Bonds have been replaced with new issue bonds valued at 31.5% of the original debt value. This would be catastrophic for investors so there have been some additional ‘sweeteners’ built into the exchange.

Investors will also receive 24 month notes from the European Financial Stability Facility and a detachable security issue – i.e. something you could sell without affecting the new Bonds you hold, that are linked to Greek National output and have a face value, at issue, equal to that of the new Bonds.

How many of you reading this are asking yourself if you could try the same thing with your bank over your mortgage?

For those that are, this is where Greece has lost friends. The ratings agency, Moody’s, has declared this a default and further lowered the Greek rating, if that was really possible.

At the moment, as stated before, the markets haven’t really reacted to this event. There has been some movement, but whether this can be attributed to Greece or other matters of concern is impossible to say.

Of course, there could be two other events scheduled for Greece that have made this round of restructuring less important than originally thought, or feared.

The first occurs on the 11th April when Greece will reissue a much larger debt.  Here €206bn, of again privately held debt, is proposed to be restructured. This time to a total face value of only 46.5% of the original value – ‘sweeteners’ included!

This, I suggest, is not what the markets are really concerned about. I suggest that their main concerns will be what happens at the  proposed Greek elections – scheduled for either the 29th April or the 6th May.

With anti-German and European feelings running high in the country, there is some pressure being applied to postpone these elections. However, it currently appears that they will go ahead.

Greek polls are inconclusive and it waits to be seen whether the voters swing to the right and favour a nationalistic approach, or to the left and try and have their state benefits reinstated.

We will keep a close eye on how this develops and monitor what the markets do in response to developments in the Greek elections.

Fund Advisers Europe
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Author Bio

davidcooperDavid Cooper is a Director of Fund Advisers Europe, a Financial Services company offering a  broad range of Investment and Insurance Services to clients across Europe and Latin America.  The majority of David’s early experience was gained by working for Lloyds Bank in the United Kingdom. David now has over 20 years' experience growing wealth management brokerages throughout Europe, the Caribbean and Latin America. The primary objective of his role at Fund Advisers is the creation of growth in Fund Advisers’ Wealth Management & Discretionary Fund Management division. David lives in Geneva with his family.

Check out the Guest Blogs section of knowitall.ch and select David Cooper under Work/Business to view his blog!