What the ECB Did in Greece, & More




Now that the much-awaited Greek debt-exchange offer has been launched, a few buried nuggets are rising to the surface. For instance, we Greek debt wonks have long wondered just what Greek bonds the European Central Bank had been buying during its forays into the secondary market in 2010 and 2011.

Well, we finally have a pretty good idea. Interestingly, the central bank’s holdings include about a third of the famous €14.5 billion Greek bond due to mature on March 20, the one that everyone was worried about. If chaos had reigned and Greece had imposed a moratorium on repayments, the central bank would have been one of the bigger losers. (Yes, it still could happen.)

In order to keep the ECB out of the restructuring, Greece gave the ECB fresh new bonds this month in exchange for the bank’s holdings. Then, Greece restricted the restructuring to bonds issued prior to 2012. Voila, ECB excluded.

For the moment, Greece now holds the ECB’s old Greek bonds. In the offer document proposing the restructuring, Greece discloses that it holds €56.5 billion worth of its own bonds, “substantially all” of which it acquired from the ECB or from other euro-zone central banks. The document also presents a table of the amount of each bond outstanding that’s eligible for the restructuring–in other words, everything that wasn’t owned by the ECB or the other central banks.

Starting with a table of Greek debt from before the restructuring offer, and employing a bit of subtraction, we can figure out what the central banks held. We count 22 bonds suggesting central-bank holdings of €55.5 billion. They are:

Maturity Coupon Total €M Central Bank
20 March 2012 4.3% 14,500 4,734
18 May 2012 5.25% 8,060 3,394
20 Aug 2012 4.1% 7,845 3,259
20 May 2013 7.5% 2,497 1,005
20 May 2013 4.6% 9,079 4,588
20 Aug 2013 4.0% 5,850 2,170
11 Jan 2014 6.5% 4,552 1,853
20 May 2014 4.5% 8,523 4,154
20 Aug 2014 5.5% 12,500 3,959
20 July 2015 3.7% 9,061 2,968
20 Aug 2015 6.1% 8,000 3,188
20 July 2016 3.6% 7,750 2,308
20 Apr 2017 5.9% 5,000 1,354
20 July 2017 4.3% 11,440 3,878
20 July 2018 4.6% 7,732 1,856
19 July 2019 6.0% 15,500 3,752
22 Oct 2019 6.5% 8,192 2,017
19 June 2020 6.25% 5,000 1,366
22 Oct 2022 5.9% 8,931 1,307
20 March 2024 4.7% 10,462 1,305
20 March 2026 5.3% 7,000 937
20 Sept 2037 4.5% 9,000 133

This isn’t an exhaustive list; we avoided floating-rate notes and zero-coupon bonds, and our total is €1 billion less than the document says is now in Greece’s hands. We also can’t separate what was purchased by the ECB during its bond-buying spree and what was held in national central-bank investment portfolios. (We’re also assuming that the lawyerly “substantially all” means “all.”)

But the bulk comes from bond purchases–around €45 billion, compared to about €12 billion in investment portfolios.

It’s also clear that the central banks were–in fact, still are–exposed heavily to the risk of a messy default in the near term: Of the holdings, €11.4 billion was due to mature this year.

Other interesting bits:

A breakdown of the €206 billion in eligible bonds shows that €21 billion are “foreign-law” bonds that won’t be subject to the new collective-action clauses (CACs) that stand ready to force the exchange on all holders of the Greek-law bonds, whether they want to swap or not.

Will those clauses be triggered? It seems very likely. The offer document has a “Minimum Participation Condition” that describes how Greece intends to act. It implies that Greece will complete the exchange without triggering the CACs if it gets 90% participation of all bonds. But, as Credit Suisse analysts point out, the €21 billion in foreign-law bonds is, handily, just over 10%, “so the maximum amount that could be tendered if every single Greek-law bondholder volunteered for the exchange would be just shy of 90%.”

It is possible that Greece could wait to see if enough foreign-law holders volunteer for the exchange to put it over 90%–they declare after the Greek-law holders–but the likelihood is small.

If Greece gets between 75% and 90% participation, it says it may do the exchange without triggering the CACs, but “in consultation with its official sector creditors”–i.e., Germany.

It is hard to see Germany agreeing to let a big chunk of bondholders off the hook while its taxpayers continue to pay for the Greek rescue.