Ponzi Bonds?

Must read on the new fashion bond issuance in Europe. By Peter Tchir via Truman Factor.

I couldn’t find the new National Bank of Greece Preferred bond that was issued to the Greek government, but I did find a bond that was issued back in June. Euribor + 1200 may seem like a big coupon, but I cannot imagine that any actual investor bought these bonds. The fact that NBG is the “book runner” of this bond is further demonstration that no real account bought these bonds – back when NBG sold actual bonds to actual institutions it hired banks like DB to lead the deals for them. As further evidence of the “special nature” of these bonds is that the “Collateral Type” is “Govt Liquid Gtd”, which means the Greek government guaranteed these bonds. So just like the Italian bonds, NBG issued these bonds to themselves, got a Greek government guarantee (how can a country that can’t borrow, provide a guarantee?) and took these bonds to the ECB to get some financing. The ECB won’t buy National Bank of Greece bonds directly, they won’t buy Hellenic Republic bonds in the primary market, but they will take these ponzi bonds as collateral?

Not only have they gone with form over substance in skirting around rules, but they have clearly thrown out any reasonable attempts at being prudent with the use of their balance sheet. Where do these guarantees show up? Is anyone out their negotiating the haircut on these bonds? Probably not since somehow a guarantee doesn’t count. Yet NBG is likely at the PSI negotiating table since they own actual Greek debt in addition to these ponzi bonds. All very confusing.

Full article here.

(Pic Wikipedia)