Today, in “Countdown to Default”: D-DAY CHRONOLOGICAL FEED SPECIAL!
First, the rumors.
[BREAKING NEWS: REVERSE BAILOUT™?] Jorge Brito, the head of a consortium of Argentine banks, ADEBA, reportedly offered at the last minute to contribute US $250 million as collateral for Argentina OR US $1.2 billion as a complete buyout of the holdouts’ debt; ADEBA did so, allegedly, in order to continue negotiating and find a way to bypass the RUFO clause until 1 January 2015 or at least have Judge Griesa reinstate his stay on Argentina’s required payment by tomorrow. At least that’s what some large media outlets said this evening. Negotiations are allegedly still ongoing.
Now… What in the hell is an ADEBA? The Asociación de Bancos Privados de Capital Argentino, or ADEBA, was founded in 1972 to “promote the development and represent the interests of private banks of Buenos Aires.” This is interesting because generally, the clients of private banks are high net worth individuals. Is ADEBA borrowing or drawing from its own clients? Was this reserve plan in the making for a long time? If so, did Brito gather consent from the clients of ADEBA’s member banks?
If any of the reports are true and an offer of US $250 million was indeed delivered, this marks a significant change in tack in Argentina’s strategy. The holdouts have always maintained that they could be flexible if Argentina would meet with them and take steps towards a negotiation. Prior to tonight’s meeting, Argentina’s negotiating team and the holdouts had never met face to face.
We still don’t know if they did, but the fact that negotiations are continuing along with rumors of a sizable offer to the holdouts suggests that progress was made and we can breath a little bit. And sleep? Just kidding. No sleeping ’till Thursday.
Now onto what we do know:
[UPDATE TO UPDATE]: DIRECT NEGOTIATIONS!
*ARGENTINA, HOLDOUTS HELD FIRST FACE-TO-FACE TALKS: POLLACK
— Katia Porzecanski (@KatiaPorzo) July 30, 2014
[ANTICIPO] Holdouts: terminó la reunión con el mediador de Griesa. Pasó a un cuarto intermedio. “Estamos trabajando”, dijo Kicillof.
— La Nacion (@lanacioncom) July 30, 2014
That’s right. Looks like both parties met face to face today, according to what mediator Daniel Pollack said. The downside? No agreement yet and they will continue their meeting tomorrow. So all those rumors I told you about at the beginning of this piece? Still rumors.
Now onto what happened before this crazy evening:
[TIME CHANGE]: Default occurs at midnight
tonight (New York City time) on WEDNESDAY – see American Task Force Argentina’s debt clock.
- With just hours until default, Buenos Aires remained calm today; perhaps this is because unlike in 2001, the government has convinced Argentine residents that la pelea con las holdouts (fight with the holdouts) is limited to a “complex” legal and philosophical battle unrelated to the real economy with no mutually agreeable solution; according to the Financial Times, pollster Poliarquía found that over the past month the number of Argentines who think the government should pay the holdouts has dropped from 65 percent to 57 percent, and 47 percent of respondents believed that the government has handled this crisis well, up from just 37 last month; I guess refusing to meet face to face and making inflammatory and reckless remarks in newspapers (that themselves could have triggered a “credit event” or payout to those holding credit default swaps) worldwide is the key to saving face these days.
- In fact, there are several mutually agreeable solutions that would not dent Argentine foreign exchange reserves OR trigger claims worth US$ 500 billion, both of which the government has argued would surely occur; moreover, although the extent to which the economy will be affected is disputed, the consensus from the academic and business communities is that inflation will indeed increase, the peso will fall, unemployment will increase, consumer spending and investment would fall, and crucially, economic uncertainty will spike. The political calculations involved are way over my head, if there is any rationale at all behind Kirchner administration’s actions.
- Although Citibank was able to process a small portion of Argentina’s June 26 interest payment to the exchange bondholders yesterday, the majority of this crucial payment still sits in Bank of New York Mellon’s account at the Central Bank of Argentina; it is this interest payment on 2033 dollar-bonds that will trigger a default if by midnight tonight it is not processed onto its recipients.
- Yesterday I argued that President Cristina Fernandez de Kirchner should outlaw use of the number 30, but Bloomberg provides some better logic than me; apparently, if Argentina cannot successfully direct an interest payment to the exchange bondholders by tomorrow, “cross-default clauses” will kick in, meaning that all foreign debt holders (debt denominated in anything other than pesos and issued under foreign legislation), amounting to US $29 billion (I rounded up, sue me), could “demand their money back immediately.” Since reserves also sit at US $29 billion, this scenario would in theory bankrupt Argentina.
- Here is @CFKArgentina rallying support at the Mercosur Conference today; she was critical of Griesa’s flipflopping regarding whether or not Citibank could process its share of Argentina’s June 26 interest payment which was issued under Argentine law; she’s got a point there.
- Too much sad news. Hope this cheers you up. Don’t miss the scene at 4:09. Sneaky Mama.
- Fitch, the ratings agency, released a statement today saying that if Argentina were to default, multinational banks with local offices do indeed have sufficient capital cushions to whether any potential run on deposits, although this scenario is unlikely.
- I swear I predicted this but didn’t write it but Axel Kicillof ENDED UP TRAVELING TO NEW YORK TO NEGOTIATE!!!! Sneaky Axel.
- Better late than never:
— Pepe Brea (@Pepebrea) July 29, 2014
- How Axel must be feeling after this sudden interest in negotiating:
- Euro-denominated bondholders today asked Judge Griesa via a memorandum to reinstate the stay on Argentina’s requirement to pay the holdouts prior to their July 30 deadline. This is seen as unlikely since the holdouts are against this proposition and Judge Griesa has said that another stay wouldn’t solve anything.
- Despite the long odds of gaining an agreement between 75 percent of the exchange bondholders by midnight, this optimistic piece of news caused the MerVal, Argentina’s benchmark stock index, to rise by 6.5 percent today; the 2033 benchmark dollar-denominated discount bonds, the bonds currently subject to default, initially sunk and then rose by the EOD Tuesday, closing at 86 cents on the dollar according to The Wall Street Journal.
- ARE YOU AS EXCITED AS I AM!?
And there you have it. In the irony of the century, what could end up saving Argentina from default and a deepening of the current recession is a consortium of banks. These ultra-capitalist, usurers, who apparently symbolize all that is wrong with the neoliberal, capitalist, western-world order that has been exploiting Argentina of its public finances but could end up being its savior. I guess logic and incentives beat populism in the end?
- Tick, tock. T-24 hours, actually this time, #Griefault or #Reversebailout™.