Goldman Sachs/Credit Suisse 2018 repo loans to Ecuador can easily fall under 'predatory lending' to poor countries. Not to exonerate Moreno government, but:
If you're a private institution, you take out repo loan to finance assets, say government bonds you previously purchased.
If you're a private institution, you take out repo loan to finance assets, say government bonds you previously purchased.
https://twitter.com/cviterigualinga/status/1085217217418088449
you 'sell' your government bonds to GS, agree to repurchase them later.
trick - you remain economic owner of government bond collateral & get interest payments from said government.
because you retain credit risk, your repo lender GS has to do collateral management.
trick - you remain economic owner of government bond collateral & get interest payments from said government.
because you retain credit risk, your repo lender GS has to do collateral management.
w balance sheets: you, Investor 1, have pledged your Ecuador government bonds as collateral to GS, who's given you USD 90 cash for USD 100 of Ecuador government bonds. Haircut 10%.
Ecuador government bonds stay on your balance sheet (assets) because you remain economic owner.
Ecuador government bonds stay on your balance sheet (assets) because you remain economic owner.
GS marks Ecuador bonds to market:
- if they fall in price, you, Investor 1, have to provide additional cash and/or Ecuador bonds to bring collateral portfolio back to 100. This is a margin call.
- bonds increase in value, then GS gives you back collateral, you get to borrow more
- if they fall in price, you, Investor 1, have to provide additional cash and/or Ecuador bonds to bring collateral portfolio back to 100. This is a margin call.
- bonds increase in value, then GS gives you back collateral, you get to borrow more
but GS/CS deal with Ecuador is different:
Ecuador issued USD 1.2bn 'fake' government bonds to pledge to GS/CS.
Fake in that it didnt get the USD1.2 bn, as a government would when it sells bonds to private creditors.
Ecuador issued USD 1.2bn 'fake' government bonds to pledge to GS/CS.
Fake in that it didnt get the USD1.2 bn, as a government would when it sells bonds to private creditors.
GS/CS repo lent USD 1bn against USD2.4 bn 'fake' Ecuador bonds (60% haircut), at around 6% interest.
things got better for GS/CS: as Ecuador 'real' bonds started to fall in price (COVID19), both called margin on Ecuador.
Ecuador paid in 'hard' cash.
things got better for GS/CS: as Ecuador 'real' bonds started to fall in price (COVID19), both called margin on Ecuador.
Ecuador paid in 'hard' cash.
Bloomberg estimated that Ecuador paid Goldman and Credit Suisse USD 700 million in margin throughout February and March 2020. As the pandemic was kicking in.
Numbers from central bank of Ecuador higher.
dolarizacionec.files.wordpress.com/2020/05/repos.…
Numbers from central bank of Ecuador higher.
dolarizacionec.files.wordpress.com/2020/05/repos.…
Ecuador defaults in April, forced to repurchase its 'fake' bonds in May 2020.
Goldman & CS lent $1bn in 2018, got back $700 mn via margin calls, 'resold' fake bonds for (approx) $800mn to Ecuador in 2020.
nice 50% return for GS/CS over 15 month.
edition.cnn.com/2020/04/03/ame…
Goldman & CS lent $1bn in 2018, got back $700 mn via margin calls, 'resold' fake bonds for (approx) $800mn to Ecuador in 2020.
nice 50% return for GS/CS over 15 month.
edition.cnn.com/2020/04/03/ame…
Ecuadorian MPs warned in Feb. 2019 that loans violated Constitution.
Loans used accounting trick: 'fake' bonds treated as contingent liabilities that did not increase external debt.
Asleep at wheel, IMF under @Lagarde gave Ecuador loan in March 2019.
Loans used accounting trick: 'fake' bonds treated as contingent liabilities that did not increase external debt.
Asleep at wheel, IMF under @Lagarde gave Ecuador loan in March 2019.
https://twitter.com/cviterigualinga/status/1085217220047839233?s=20
I am not an expert in odious debt, but at least dont 'oh Ecuador was so much better at negotiating its debt restructuring than Argentina' at me
ft.com/content/1dd975…
ft.com/content/1dd975…
And here a translation for those confused by my balance sheets
https://twitter.com/tameimpalatame/status/1317426766521245697?s=19
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