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Default in Russia: has it come or not? The CDS Committee is still thinking

USD/RUB, currency, Default in Russia: has it come or not? The CDS Committee is still thinking

On April 11, one of the market participants sent a request to the CDS Committee with a request to consider the situation with Russian Eurobonds. We are talking about the issues of Russia-2022 and Russia-2042, for which the Ministry of Finance of the Russian Federation could not make a payment in dollars and transferred the amounts in rubles to special accounts of type "C", according to the Presidential Decree.

Nevertheless, if you focus on the issue prospectuses, the payment in rubles is still a default. So far, however, technical: until May 4, Russia has time to pay in dollars.

For reference:

CDS - "insurance" against default. The CDS seller reimburses the buyers for losses related to the issuer's default. But before the payments are made, the CDS Committee - Credit Derivatives Determinations Committee — must confirm that the "Default Event" has occurred.

Who will make the decision?

A full list of all current members of the committee can be found here. Among them are the giants of the derivatives market:

  • Bank of America;
  • Barclays;
  • BNP Paribas;
  • Citibank;
  • Credit Suisse;
  • Deutsche Bank;
  • Goldman Sachs;
  • JPMorgan Chase;
  • Mizuho.

The Committee also includes the largest vulture fund Elliott Management Corporation.

As a result, the Committee must decide whether the fact of default has occurred or not. If yes, you will have to pay for CDS in Russia.

Who will pay for the insurance?

According to Bloomberg, PIMCO funds sold the most CDS - almost $1 billion. All this is according to open data at the end of 2021. Pimco itself refrained from commenting. By the way, she, represented by Pacific Investment Management Co., LLC, is also a member of the CDS Committee.

Investment Management Company Pimco is an investment holding company with many funds with a total asset value of about $2.2 trillion under management. Former Fed Chairman Alan Greenspan worked for the company at one time.  

In 2000, Invest Holding was acquired by the German insurance concern Allianz. Bloomberg has previously written that Allianz, BlackRock and Vanguard Group are the largest foreign holders of Russian sovereign debt.  

Allianz is one of the oldest companies in Europe, founded in 1890 in Berlin. For many years of its existence, it has managed to "shine" in many historical events — from the payment of compensation to the victims of the Titanic to the insurance of buildings and personnel of the Auschwitz and Dachau concentration camps.  

By the way, the default that Russia is now predicting may be just the beginning of an epic. If this happens, sellers of so-called CDS may come on the scene.

Now the cost of CDS for Russia is off the scale and reflects the following expectations:

  • 71% - probability of default within 1 year;
  • 81% - probability of default within 5 years.

Who sells CDS?

This is an over-the-counter instrument. There are not so many sellers of "insurance" against defaults, mainly large international banks.

Which Russian bonds are covered by CDS?

They only protect against Russia's default on foreign currency bonds and do not apply to ruble-denominated government bonds.  

Can sellers of "insurance" waive their obligations?

They were close to it once, when the question of Greece's default arose. Then ISDA, the International Swaps and Derivatives Association, pretty much "rubbed the nerves" of bondholders, while doubting whether to recognize the case with Greece as a default or not. But in order not to undermine the credibility of CDS as a tool, I still had to make payments.

Currently, a request has been sent to the CDS committee, but the date of the meeting has not yet been set. We are waiting for developments.

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Amazon will spend nearly $1 billion on hourly wage increases in 2023
Amazon, stock, Amazon will spend nearly $1 billion on hourly wage increases in 2023 Major online retailer Amazon.com announced a wage increase for hourly workers in the U.S. that will increase the average starting wage for most front-line warehouse and transportation employees to more than $19 an hour.The company said the increase carries an additional cost of nearly $1 billion over the next year. Amazon is the second-largest private employer in the United States after Walmart Inc. Amazon employed more than 1.1 million people in the U.S. at the end of 2021. As of June 30, the company had more than 1.5 million total employees. Most of those employees are hourly workers who pack and ship merchandise or work in retail stores such as Whole Foods Market and Amazon Fresh.The company is also expanding access to a program that allows employees to get paid more often than once or twice a month, according to the statement.Amazon is facing employee activism and unions at some of its facilities, including a warehouse in Albany, N.Y., where a vote is scheduled for next month. The company is contesting an election last April in which more than 8,000 workers at the warehouse in Staten Island, N.Y., won the right to be represented by a union.Amazon shares on NASDAQ rose 3.15% to $118.01 a share in trading on Sept. 28, and are momentarily losing 1.47% ($116.28) in premarket trading on Sept. 29.
Sep 29, 2022
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