So, Reuters’ Felix Salmon seems to be on the point of challenging Gretchen Morgenson of the New York Times to a duel. I exaggerate, it’s not that personal– yet.
Salmon objects to Morgenson’s critical portrayal of BNP Paribas’ role in the Greek bond swap discussions. To recap: as part of the latest Greek bailout private bondholders have been “invited” to take a a 50% write-down by exchanging old bonds for new ones, plus some additional yet-to-be-finalized incentives. The Greek government had hired BNP Paribas and a few other European banks back in the summer to help persuade the bondholders to sign up for this.
Morgenson relies on the views of a few anonymous investment managers who met with BNP a few times as part of this exercise. According to them BNP has been doing a hard sell,
“telling bond holders that their credit insurance may not pay off down the road, because after the restructuring is completed, the terms of the old debt might be changed.”
As I mentioned before it’s true that most Greek bonds are actually governed by Greek law and Greece can, of course, change its law as it likes. It’s impossible to speculate whether a change like this would give the bondholders cause for arguing that an event of default has been triggered and they’re therefore entitled to have the credit insurance, or CDS, pay out. Certainly anything that prevented them from receiving timely payment of interest and timely repayment of principal could be such a trigger event. However, it ain’t as simple as just checking a box. From my earlier post:
“The ISDA Determinations Committee will have the final word[...]The vote that wins an 80% majority of the Determinations Committee’s members will carry the day.”
As I’ve previously written, the ISDA Determinations Committee is made up entirely of banks and investment managers. What Morgenson highlights is that Belle Yang, one of the BNP specialists pushing the bond swap, admitted to the reluctant fund managers that she is actually a member of this committee.
Now, that’s pretty darned interesting, if you ask me. Just when I thought this whole Greek bond swap + CDS issue couldn’t get any shadier it surprises to the upside.
Felix Salmon, however, is less than impressed. He says that Morgenson’s article “ratchets the conspiracy theorizing up to frankly bonkers levels”. He picks more bones with Morgenson’s article than a guy looking for turkey leftovers on the day after Thanksgiving and yet entirely sidesteps the yawning conflict that exists in Belle Yang’s dual roles. Huh? (Funny enough, both he and Morgenson missed the fact that the Greek government actually dropped BNP and the other advisors earlier this month. Hat tip to @Alea_. Anyone care to speculate why?)
Gretchen Morgenson is no Bob Woodward, but she does have a legitimate scoop here. Don’t hate the player, Felix. Hate the game.