Tags: Wells | Fargo | Greece | Default

Wells Fargo’s Wren: Greece Will Default Sooner or Later

Friday, 09 Mar 2012 08:12 AM

Greece may have restructured its debts with private bondholders but the country will default sooner or later, as the restructuring doesn't address fundamental economic problems in the country, says Scott Wren, senior equity strategist at Wells Fargo Advisors.

The majority of Greece's private investors agreed to accept a face-value loss of 53.5 percent in exchange for new bonds as part of the restructuring.

Greece was required to work out a deal in exchange for access to a $172 billion bailout fund arranged by European Union leaders, yet the Greek economy doesn't change with the restructuring.

The economy is contracting, debts are high and confidence battered.

The Greek government still owes multilateral lending agencies like the E.U. and the International Monetary Fund money, and nothing guarantees private creditors will remain safe even after restructuring.

"Even if we band aid this Greek situation right now, they’re going to default down the road or write down 100 percent of the debt," Wren told CNBC.

Meanwhile, to get creditors to agree to restructuring, the Greek government activated collective action clauses on the bonds, which may mean credit default swap (CDS) payments to kick in.

Credit default swaps, made famous during the U.S. housing bust, are insurance policies against a default.

"It almost now certainly going to trigger CDS. If this doesn't trigger it, nothing will," says Nick Stamenkovic, a bond strategist at RIA Capital markets in Edinburgh, according to Reuters.

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2012-12-09
Friday, 09 Mar 2012 08:12 AM
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