Hedge funds, local banks eager to see who blinks first

The tactical play observed between Greece’s Finance Ministry and international hedge funds regarding the latter’s participation in the bond buyback program is set to culminate on Friday, with the submission deadline for offers from bondholders slated for 7 p.m.

Hedge funds and Greek banks hold the bulk of Greek bonds eligible for a buyback (worth about 40 billion euros from a total of 61.4 billion). Up until last night most hedge funds were waiting to see what local lenders would do, as each side wants to keep their participation to a minimum in a bid to contain their losses. Still, some hedge funds have already applied to take part, with their bonds adding up to some 4 billion euros.

Finance Minister Yannis Stournaras has not ruled out an extension to the deadline, possibly until the beginning of next week, depending on the offers the ministry gets.

Bank chiefs had a final meeting with Stournaras on Thursday ahead of the decision-making board meetings to be held by all main lenders on Friday. The most likely scenario is that they will all take part, but not with all the bonds they hold.

However, it does look as though banks have had it their way this time, as in return for their participation in the buyback program, they appear to have secured a tax exemption for their losses from the PSI debt restructuring, amounting to taxes of 4.2 billion euros, and from the buyback, equal to 2 billion euros.

They have also reportedly secured the protection of the banks’ governing boards from civil liability.

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