By Simon Clark
American billionaire Wilbur Ross bet the Greek economy was
finally improving in April last year when he joined a group
investing EUR1.33 billion ($1.55 billion) in lender Eurobank
Ergasias SA.
The value of the investment has since fallen by a third, as
markets have been shaken by Greek Prime Minister Antonis Samaras's
failure to win a parliamentary majority to elect a new president.
That has triggered a snap general election on Jan. 25, which may
open the door to left-wing firebrand Alexis Tsipras, who is leading
in the polls.
Adding to the air of trepidation ahead of the vote, Eurobank and
another lender, Alpha Bank SA, have requested access to an
emergency cash facility run by the central bank. Both said the
moves were only a precaution and that neither faced an immediate
funding crunch.
People familiar with the matter said the banks are seeking a few
billion euros between them. The move has again evoked fears over
the stability of Greece's banking system as the country lurches
through another period of political uncertainty.
"One of the risks that we knew we were taking was the risk that
Samaras would not prevail," Mr. Ross said. "Clearly, the main thing
that has changed for the negative is the political outlook, with
[leftist opposition party] Syriza seeming to be ahead in the polls
saying some fairly anticapitalist sentiments."
Hedge-fund manager John Paulson, who made billions as a result
of his correct call on problems in the U.S. subprime-mortgage
market during the financial crisis, has invested in Alpha and
another Greek lender, Piraeus Bank SA. In December, he said that
his investment plans in Greece were on hold.
"We are prepared to invest more in Greece. But we need political
certainty," he said. "The uncertainty has caused the stock market
to fall and new investments to be postponed."
On Friday, Greek government bond prices sank and stocks
declined. The Athens Stock Exchange General Index fell 1.8%, with
banks leading the drop.
According to the latest data from Greece's central bank,
nonperforming loans, those for which debtors have failed to make
payments for more than 90 days, total EUR77 billion.
Syriza has vowed to implement a law preventing banks from
seizing the homes of people who have fallen behind on paying
mortgages on primary residences valued at less than EUR300,000.
Mr. Ross said the policy is bad for Greek citizens, as well as
for his Eurobank investment, because it will prevent the
real-estate market and banking system from functioning.
A government ban on foreclosures started in 2008 and was
supposed to end in December 2013. The government extended it for
another year, to the end of 2014 for primary residences valued at
up to EUR200,000.
A further moratorium on foreclosures is vital to protect poor
Greeks, according to Victor Tsiafoutis, a lawyer at consumer
advocacy group Ekpizo. "We need to suspend the foreclosures until
generous and serious measures are taken to assist debtors," he
said. "Something has to be done. Until now, the banks have not
shown any serious intention to propose serious settlements to
consumers and small entrepreneurs."
Achilles Risvas, who manages $200 million at Dromeus Capital and
has been investing in Greece since 2012, said it was too soon to
predict how Syriza's policies would play out if they win the
election. "Syriza's rhetoric has softened and is becoming a little
bit more mainstream as time passes," he said. "The market is
reacting too negatively."
Elena Papadopoulou, a Syriza economist, said the party's
proposed moratorium would only protect "the vulnerable social
strata," such as people older than 65, the unemployed, the poor,
and those with permanent illnesses who have already been registered
as nonperforming. "It does not extend to future nonperforming
loans, and it does not extend to all current nonperforming loans,"
she said.
A Eurobank spokesman declined to say how much of the bank's debt
had been covered by the foreclosure moratorium that ended in
December. National Bank of Greece SA also declined to comment.
At Piraeus Bank, the moratorium covered about EUR500 million of
mortgages, according to a spokesman. A further EUR2.6 billion of
Piraeus's loans are covered by a law that protects assets,
including homes of bankrupt individuals, he said.
Alpha Bank declined to say how much mortgage debt was covered by
the moratorium. The bank has about 17,500 customers who are
protected by the bankruptcy law, a spokeswoman said. "This law
dictates that until a final ruling is given by the court, banks
should withhold any foreclosure procedures," she said.
"What they don't seem to understand is permitting foreclosures
doesn't mean masses of people will be thrown out of their homes,"
said Mr. Ross, who made his fortune from investments in the Bank of
Ireland to steel, coal and textiles companies. Banks usually
foreclose on "strategic defaulters" who can pay and choose not to,
rather than on people in genuine difficulty who need their debt to
be restructured, he said.
Mr. Ross agreed to invest EUR37.5 million in Eurobank last year
alongside investors including Fairfax Financial Holdings Ltd.
Fairfax founder Prem Watsa said last year that Eurobank could be
"the first turnaround story in the Greek banking system postcrisis"
and that "markets have already begun to realize the considerable
opportunities that exist in the Greek market and the positive
prospects for the country."
Fairfax President Paul Rivett said he is optimistic the firm's
EUR400 million investment in Eurobank will be positive in the
longer term. "We look at the underlying fundamentals and do not
focus on short-term stock-market moves," he said.
Alkman Granitsas and Nektaria Stamouli contributed to this
article.
Write to Simon Clark at simon.clark@wsj.com
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