Why the Financial Times is wrong to raise the alarm on the ‘overtaking’ of Greek BTPs over Italian ones – Business Insider Italia


Really the alarm launched by Financial Times About the greater risk component represented by Italian BTPs compared to the Greek duration, after the fractional overtaking of our 10 card on the Hellenic one, should be taken seriously?

Primarily, there are two facts.

First, l‘General increase in current yields due to the race towards equities that has increased all the differentials on fixed income, which obviously affects one the most outstanding like the Italian one and the general market value.

Second, on the very short term Greece can count on a media honeymoon guaranteed by the early repayment of part of the 9 billion of the last loan obtained from the IMF and from the declared choice business friendly of the new center-right government, which is preparing to launch a cut of the corporate tax just to facilitate the landing of foreign investments (and capital).

The Roma def, objectively, shows much smaller profiles of appeal, if only for the rate of contentiousness in place.

All true, then? Not exactly.

There Greece the effect, this time in positive, is the effect poster-boy. That is, one guilt complex syndrome that the EU and the IMF serve in its regard for the austerity applied during the years of the post-2011 black crisis, aggravated by its most immediate symptoms landing at the head of the ECB of the former number one of the Monetary Fund, Christine Lagarde. In short, for now and as long as the markets are manageable in their reactions to macro data, Athens must be preserved from other bloodletting. Or worse, full-blown crises. And the proof will come soon, because it will be precisely the Eurogroup that will have to give the definitive green light to the dynamo that, together with the general compression of the returns of the last months, has allowed the Greek government bonds to arrive even in negative over the three weeks of duration.

These two graphs put the situation in perspective: not only iThe Greek stock market is traveling at + 40% year to date

but the banking sector, the same one that blew up the crisis that almost collapsed the whole country, can boast a flattering + 31%, with its names become sadly known in the recent past that now grind worthy unicorn increases of the US tech sector.

Why? IS What does the Eurogroup have in mind?

It is soon said.

The conservative government of Kyriakos Mitsotakis is imitating the scheme launched in Italy in 2016, the so-called GACS and through theOperation Hercules and its 9 billion in countervalue aims at mobilize disposals for 30 billion. About what? Of the approximately 80 billion NPLs in the belly of the same banks Greek that make sparks on the stock exchange, a figure that is equivalent to something like the 45% of total credits.

The scheme provides that banks require the guarantee only on the portion senior of receivables to be transferred, that is the safest one e only after the sale on the market of at least half plus one, including credits junior, or the riskiest portion. The guarantee will be applied after the payment of commissions, equal to the sovereign risk calculated on the basis of credit default swaps of the same duration and which on the three-year maturity today amount to around 137 basis points, to the lowest level since 2009.

There tranche senior will probably receive the BB rating, contrary to that investment grade which Italian banks can enjoy on their guaranteed disposals.

The transaction, the Greek State also expects to earn 200 million in commissions per year.

In short, not only someone is already giving the green light to the Eurogroup today for sure operation tout court but he also believes that the latter will go completely and wholly in the direction advocated by Athens. It's here, some legitimate doubt arises.

If the policy and the regulators decided for the green light tooOperation Hercules, those NPLs will be sold at a fraction of their face value and almost certainly well below that already reduced by the banks after the hedges. Translated, in the coming years, heavy losses for the institutions will emerge. The negative effect, however, is believed to be fully counterbalanced by the state guarantee, which should serve to sustain the prices of the bonds issued to cover the most solid tranche, encouraging purchases of the latter and – in cascade – less portions secure. Actually reducing the liabilities.

And here the first bet in the bet: the Greek institutes and those who are strongly focusing on their titles believes that in the end the cost to be borne for the state guarantee will be lower than the benefits that it will bring to the banks in terms of ability to sell at higher average prices. Probable but certainly not guaranteed. Rather.

And the question should now be stringent, given that in Athens we are working towards a plan that enters the operational phase already by the end of 2019 or the beginning of 2020.

Then there are two other critical points that, given the harvest of optimism that seems to surround current Greece as an aura, they are read by investors as easily overcome.

First, net of the knot of suffering, it is necessary to remember how of the approximately 355 billion euros of Greek public debt, only about 70 remain in private hands after restructuring with haircuts of 2012. The rest is in the belly of the same Greek banks that are exploding on the Stock Exchange, despite the fact that the real trading volumes of those bonds are still very low on the secondary market.

Second, the rating. Who points to Athens, in fact, bets that one of the four sisters (Standard & Poor’s, Fitch, Moody’s and especially the Canadian one DBRS, which with its solitary investment grade has kept Portuguese bonds alive for at least 3 years after the 2011 crisis, guaranteeing their eligibility for purchase at the ECB) will make the big jump and re-admit the Hellenic card among the securities with investment grade, thus allowing the acquiring – at least on certain deadlines – by the Eurotower during the next Qe program at the gates. Which, in the intentions of Mario Draghi so far never denied by Christine Lagarde, seems destined to last as long as necessary.

All this, however, with a debt / GDP ratio of Athens still at 180%.

In light of all these critical issues and hypothetical developments all devoted to extreme optimism, indeed that fractional overtaking in the performance between Italian and Greek decennials deserved a front page title so uncritical of the Financial Times?

Especially since, finally, it is these hours novelty element which seems to have affected in part the leap of our sovereign yields of these days. Or, the acceleration proposal on the advanced EU banking reform – always from the columns of Financial Times by the German Minister of Economy, Olaf Scholz.

Which, however, would provide more stringent rules precisely on accounting for the NPLs in the financial statements and new rules on bank detention of government bonds, the two Achilles heels of the Italian system. But also – and with much greater degree of invasiveness, given the proportions – of the Hellenic one: really the promises business friendly of the government of Athens arouse so much enthusiasm and hope, really theOperation Hercules does the panacea of ​​every distortion appear?

Or Greece can really count on a sort of temporary political immunity, while in times of increasing tension the punching bowl Italian always returns to fashion, especially across the Channel?

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