Pivot Capital Management advised in 2007 buying credit-default swaps of Baltics

[Joanne98]

Pivot Capital Management Ltd. recommended as early as in the middle of 2007 to buy credit-default swaps, a form of debt insurance, on the sovereign debt of the Baltic states, arguing that such insurance was priced too cheaply, The Wall Street Journal writes.

A London hedge-fund firm wrote in a report in mid-2007 that countries like Hungary and the Baltic states were "on the Asian currency crisis path," referring to the financial crisis of the late 1990s. As of December, Pivot continued to bet against the debt of Latvia, according to a note to investors, informs LETA.

Latvia is now mired in a recession and dependent on assistance from the International Monetary Fund.

At the beginning of the last year, the cost of buying insurance to protect against Latvia defaulting on its debt was 127,000 euros a year for each 10 million euros of a debt, according to Markit Group, a credit-information firm.

By year end it was 800,000 euros, and earlier this week it touched 928,000 euros.

Pivot's main fund was up 52% last year, according to the company's December newsletter.

One way to benefit from a slump in Eastern Europe was to bet against Western European banks with exposure to the region. Many of those banks were cited by Moody's Investors Service this week as being at risk, helping spark the latest downward spiral.

Pivot bet against Swedbank AB, a Swedish bank with exposure to Baltic countries. The report from Moody's noted that more than a third of Swedbank's pretax profits in 2007 came from the Baltics and Poland.

A New York investment manager of Traxis Partners LP Amer Bisat noted that the crisis in Eastern Europe has been "one of the best-telegraphed stories," after a series of false alarms over the past two years, "Now the big one seems to be happening."

Bisat said he made money betting against currencies and on rising credit-insurance prices in the region in recent months.

http://www.baltic-course.com/eng/finances/?doc=10108