How Much has Germany PROFITTED from the Bailouts?

Profits not “Costs” from the Bailout

For all the talk about how much the bailouts are “costing” Germany and other countries, they have so far been very profitable.

Minimal Cash Outflows

In the early days, the countries did provide some funds. They may also have to provide the IMF with money (though the IMF also seems to be able borrow rather than demand actual funds). Since then, the ECB and EFSF have largely provided the funds. So in spite of all the talk about the “cost” of bailouts, the structure has allowed the money to go to Spain, Italy, Greece, Portugal, and Ireland with minimal cash out the door.

The Guarantees and Support Haven’t Hurt Yields

Germany and other countries are now actually getting paid to borrow in some maturities. So in spite of all the guarantees they have thrown around, to my surprise their funding costs have gone down rather than up. Even if rates normalize the good countries will have seen little to no impact from the bailouts on their own cost to borrow. If they have taken advantage of current rates, they can actually have the lowest average coupons ever. So the guarantees haven’t cost them anything.

Coupon Income

Some programs have been in place for almost 2 years now. So far the governments have not had a loss on any position and have received current income. The ECB’s SMP portfolio, as problematic as it is, has so far generated both coupon income and profits when its Greek bonds are paid back at par. This money is then transferred to the various countries.

The IMF is receiving interest, again generating a profit, and so far no losses for IMF contributors either.

The EFSF has some sketchy risk (their roll in the Greek PSI deal), but again, so far has been generating income without taking any credit losses.

The return on cash may well be over 100% for some of the countries since they posted minimal cash, and the steady stream of coupon income is adding up over time.

Value of Residual Assets

Away from the involvement in Greece, especially the EFSF PSI deal, there is a real chance that many of the other loans get paid back at cost. The IMF is senior. So far the ECB has been senior. This is definitely the weaker end of the “profit” versus “cost” argument, but just like the U.S. experience with TARP, assuming that none of the loans will be paid back overestimates the “cost”.

Worth Thinking About

For all the talk about how much this has “cost” countries like Germany, so far they have actually generated profits, and it is unclear how much the bailouts will ever cost, especially if they are able to retain seniority in Spain and Italy.