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15 November 2011

FN: BlackRock calls for 80 per cent Greek haircut


BlackRock is calling for bond holders to write off 80 per cent of the value of Greek, Portuguese and Irish debt, suggesting that recent agreements between European regulators and investors in government debt do not go nearly far enough.

BlackRock Investment Institute said: “Our analysis suggests private creditors should write off 75 per cent to 80 per cent of Greek debt to allow for permanent stability". Arguably, holders of Portuguese and Irish debt are in for similar 'haircuts'. "We believe banks need to be forced to take these charges rather than participate in a voluntary scheme that is unlikely to bear fruit.”

Earlier this month, Société Générale also wrote down its Greek debt by 60 per cent, and cancelled its 2011 dividend in order to strengthen the bank’s capital. Italy, the world’s third-largest bond market, has been the latest sovereign to be hit by the eurozone crisis. The cost of borrowing for Italy’s new government, led by former economist Mario Monti, hit 6.29 per cent today, a record high for the eurozone today.

The BlackRock note, written by Ewen Watt, chief investment strategist, Scott Thiel, head European and non-US fixed income, and Richard Turnill, head of global equity, was hard-hitting about the problems facing Italy. It said: “Fear has overtaken markets, exacerbated by global banks’ shedding risk assets. The result is paralysis. Only continued bond buying by the ECB can break the buyers’ strike in the short term. This is a necessity: As the world’s third-largest bond market, Italy is simply too big to fail.”

Full article (FN subscription required)



© Financial News


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