On Spiegel online, Christoph Schult reports about “Instrument in Support of Trade Exchanges” (Instex), the new special purpose vehicle founded by France, Germany, and the UK with the task to facilitate legitimate trade with Iran. Instex is not meant to bust US sanctions, but to circumvent the banking sector which the the three countries perceive as “overcomplying.”
Eigentlich dürfen europäische Unternehmen alle Waren, die nicht den Sanktionen unterliegen, weiter in den Iran exportieren. Problem ist allerdings, dass fast alle Banken in Europa ablehnen, den Zahlungsverkehr für solche Geschäfte abzuwickeln. Die Geldinstitute haben Angst, sie könnten in den USA bestraft werden. “Overcompliance” von Sanktionen nennen das EU-Diplomaten – Übererfüllung.
Instex ist eine Art Tauschbörse, in der die Forderungen von iranischen und europäischen Unternehmen miteinander verrechnet werden. Geld, das Iran zum Beispiel für Öllieferungen nach Europa in Rechnung stellt, könnte direkt an europäische Firmen fließen, die Produkte nach Iran verkaufen.
Update (Feb 4): In the FT, Michael Peel discusses the SPV.
In the FT, Kate Burgess, Harriet Agnew and Scheherazade Daneshkhu report about new accounting rules according to which companies will have to report leasing commitments as debt (and the leased assets as on-balance-sheet assets).
A new financial reporting standard — the culmination of decades of debate over “off-balance sheet” financing — will affect more than one in two public companies globally.
Retail, airline and hotel companies are expected to be affected most strongly.
In the FT, Ben McLannahan reports about a change in US accounting standards concerning the valuation of bank debt.
Under the rules in place since 2007
banks were allowed to use market prices when valuing their own debt, meaning they could book profits when their debt fell in value and losses when it rose.
Particularly during the financial crisis this led to sizable effects of swings in debt prices on bank profits. Under pressure from financial institutions, the Financial Accounting Standards Board “threw in the towel” and follows the International Accounting Standards Board which already backtracked in 2014. Under the new rules the debt valuation adjustments are expected to become more or less irrelevant.
The intention of the 2007 rules was clear:
… if banks were going to book their assets at market value, rather than cost, they should also book their liabilities at market value. Companies should therefore be allowed to recognise gains when the value of their bonds fell below par, the FASB reasoned, on the assumption that they would be able to buy them back at a discount.
But this implied that banks “booked income in bad times and expenses in good times.”
In a Vox blog post, Julian Schumacher and Beatrice Weder di Mauro offer meaningful Greek government debt statistics. They quote an ESM estimate according to which the 2012 restructuring of Greek debt owed to official lenders amounted to a 50% haircut (see this previous blog post). And they argue that the net present value of Greek government debt relative to GDP amounted to 93% (presumably in 2013 or 2014), in line with other estimates (see this previous blog post).
The measures correspond to substantial economic debt relief … Considering these maturity extensions and interest rate deferrals over the entire debt servicing profile from a net present value (NPV) perspective shows a reduction in the overall debt burden and reveals implicit savings. … Stretching out principal repayment schedules over such an extended period of time, along with interest payment deferral, imply that these payments account for substantially less in NPV terms when assessed from the Greek side taking into account the financial market perspective.
No explanation is given as to why the NPV perspective should only reveal “implicit” savings. Whether a Euro must be paid in ten years or in twenty does make a difference, and a rather substantial one at the relevant interest rates. A footnote attached to the last sentence of the above quote is rather obscure as well. It says:
It should be noted that this does not entail any financial loss or write-down from an EFSF perspective. The EFSF is fully repaid; Greece has to cover any financing costs related to the agreed interest rate deferral in line with the amendment of the Master Financial Assistance Facility Agreement.
See the earlier post on how to correctly account for sovereign debt.
According to estimates based on the accounting standards IPSAS, ESA 2010 or SNA 2008, Greece’s gross government debt quota at the end of 2013 amounted to roughly 70% and its net debt quota didn’t exceed 20%. The debt numbers give the present values of the contractual payments, discounted at the market yields at the time the debt was issued or restructured. The estimate of the gross debt position closely resembles estimates of the market value of Greek government debt by economists.
The claim that Greece urgently needs debt relief received only limited support, and least from people who worked for and with the Greek government. My reading was that any need for near term debt relief is mostly of a political nature.
20.221: Debt operations can be particularly important for the general government sector, as they often serve as a means for government to provide economic aid to other units. The recording of these operations is covered in chapter 5. The general principle for any cancellation or assumption of debt of a unit by another unit, by mutual agreement is to recognise that there is a voluntary transfer of wealth between the two units. This means that the counterpart transaction of the liability assumed or of the claim cancelled is a capital transfer. No flow of money is usually observed, this may be characterised as a capital transfer in kind.
20.236: Debt restructuring is an agreement to alter the terms and conditions for servicing an existing debt, usually on more favourable terms for the debtor. The debt instrument that is being restructured is considered to be extinguished and replaced by a new debt instrument with the new terms and conditions. If there is a difference in value between the extinguished debt instrument and the new debt instrument, it is a type of debt cancellation and a capital transfer is necessary to account for the difference.
22.109–110: Debt rescheduling (or refinancing) is an agreement to alter the terms and conditions for servicing an existing debt, usually on more favourable terms for the debtor. Debt rescheduling involves rearrangements on the same type of instrument, with the same principal value and the same creditor as with the old debt. Refinancing entails a different debt instrument, generally at a different value and may be with a creditor different than that from the old debt. Under both arrangements, the debt instrument that is being rescheduled is considered to be extinguished and replaced by a new debt instrument with the new terms and conditions. If there is a difference in value between the extinguished debt instrument and the new debt instrument, part is a type of debt forgiveness by government and a capital transfer is necessary to account for the difference.