Current Idea of a Modest 'Bond Haircut' Insufficient According to BNY Mellon's Newton
NEW YORK, September 14, 2011 — Removing Greece from the eurozone might be the best solution to ending the uncertainty and volatility in the European markets and would remove one of the biggest hurdles impeding an economic recovery in Europe, according to a white paper from Newton*, the London-based global asset manager that is part of BNY Mellon Asset Management.
"We have believed for some time that Greece's withdrawal from the eurozone is inevitable and all plans introduced until now have simply been about building enough time for the European financial system to prepare for this eventuality," said Paul Brain, investment leader for fixed income at Newton. "With the possibility of a Greek default becoming more likely every day, time has run out."
The Newton report suggests that the default resulting from Greece's departure from the eurozone would have a 40 percent recovery rate and would reduce the Greek deficit to more sustainable levels. Brain believes that a new drachma currency would have to be introduced and support from the International Monetary Fund would be required as Greece transitions to its new currency.
"The hit to the Greek economy would be huge, but would it be any worse than the present situation of depression and growing deficits?" Brain added. "Current Greek bond prices almost reflect this scenario, so it should not come as a surprise."
According to Newton, one potential outcome of a breakup due to a Greek default would be a stronger euro.
Newton* is a London-based global asset management subsidiary of The Bank of New York Mellon Corporation and part of BNY Mellon Asset Management. With assets under management of more than $76 billion, including assets managed by Newton Investment Management Limited as dual officers of Newton Capital Management Limited and The Bank of New York Mellon, Newton's group of affiliated companies provides a broad range of award-winning investment products and services to individuals, pension funds, charities and corporations. News and other information about Newton is available at www.newton.co.uk.
BNY Mellon Asset Management is one of the world's leading asset management organizations, encompassing BNY Mellon's affiliated investment management firms and global distribution companies. Information about BNY Mellon Asset Management can be found at www.bnymellonam.com.
BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team. It has $26.3 trillion in assets under custody and administration and $1.3 trillion in assets under management, services $11.8 trillion in outstanding debt and processes global payments averaging $1.7 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available at www.bnymellon.com and through Twitter @bnymellon.
*'Newton' refers to the following group of affiliated companies: Newton Investment Management Limited, Newton Capital Management Limited, Newton International Investment Management Limited, Newton Capital Management LLC and Newton Fund Managers (CI) Limited. Assets under management include assets managed by all of these companies except Newton Capital Management LLC, which provides marketing services in the U.S. for Newton Capital Management Limited. Except for Newton Capital Management LLC and Newton Capital Management Limited, none of the other Newton companies offer services in the US and Canada. Newton Capital Management Limited is an investment management firm authorized and regulated in the United Kingdom by the Financial Services Authority in the conduct of investment business and is a wholly owned subsidiary of The Bank of New York Mellon Corporation. Registered in England no: 2675952. Newton Capital Management Limited is registered in the United States as an investment adviser under the Investment Advisers Act of 1940. Unless otherwise stated, all information source BNY Mellon Asset Management as at 30 June 2011. This press release is qualified for issuance in US and Canada and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorised. This press release is issued by BNY Mellon Asset Management to members of the financial press and media and the information contained herein should not be construed as investment advice. Past performance is not a guide to future performance. A BNY Mellon Company(SM)