posted on Jan, 21 2015 @ 09:14 PM
It seems the struggle for Ukraine isn't limited to the cold Eastern territories bordering Russia. In Davos today the IMF and Ukraine met to work out
more emergency financing. Of course Ukraine needs more money, they are fighting a war against a much larger neighbor, but an interesting twist to the
financing story ensued.
After the meeting Ukraine officials said they were going to talk to bondholders to discuss terms. Typically this means people are going to get paid
later than they expected, however in the case of Ukraine some people think the IMF might also be pushing for a haircut of current bond holders. Of
course the 'terms' were never clarified, however markets immediately started incorporating a higher risk of a bondholder haircut into prices.
Generally this type of story is boring. Ho Hum, another country in financial trouble. However in Ukraine's case one of the largest bondholders is the
aggressive neighbor it's fighting on the battlefields, Russia. Just prior to the Ukrainian revolution Putin actually ponied up $3 billion in
financing to help convince Ukrainian politicians to stay with mother Russia. Putin foolishly handed over the huge wad of cash immediately, which any
parent knows is a recipe for disaster. Apparently those Kiev politicians didn't share the wealth enough as they were shortly afterwards booted out of
office. Putin's $3 Billion was gone into the deep hole formerly known as Ukraine's Bank reserves. Of course the big Russian state banks also hold a
ton of Ukrainian bonds but it's difficult to know exactly how much. A haircut is going to be expensive for Russia.
Of course the other big Ukraine investor is US giant Franklin Templeton. Holding about 40% of Ukrainian government bonds or so people guess. Looks
like free haircuts for lots of bankers around the world! *Wild Cheers erupt around the World*
By linking bond restructuring to new financing the IMF is effectively trying to neutralize the $3 Billion Russian bond terms which allow Russia to
call in the loan at any time they want right now. Of course Russia would rather hold the financial hammer over Ukraine's head for as long as possible
and drop it at the worst time. The IMF may be playing a game of chicken with Russia, daring them to refuse changing the bond terms. If Russia refuses
to delay payment then Ukraine defaults immediately, everyone gambling in Ukraine loses their shirts after which a massive IMF recovery package saves
the day and keeps Ukraine fighting.
If you think bankers don't go for the throat like this then you don't know a banker! They'll boot you out of your home and try to claim your
breathing assistance machine is a fixture and must stay. There is going to be Bankers losing shirts in this battle for Ukraine. The question is only a
matter of which countries citizens will have to foot the bill...