Hedge funds on the queue for NPLs in Greece
by Dimitris Rapidis and Martin Foehler
Non-performing loans are always a magnet for hedge funds. Especially when investment and further involvement in the relevant market is entailed with strong institutional clauses and protection. At the current stage the Greek banking system is extremely fragile per se, but guarantees from the ECB remain always a safety heaven against uncontrolled risks. Added to that, capital controls further secure such investments as the threat for massive withdrawals from the banks is addressed.
NPLs can yield significant gains for hedge funds, whereas banks can secure a safe level of NPLs and balance the risks in the domestic market and the banking sector. In the ongoing discussion we need to add the negative stance of the Director of Piraeus Banks Mr Sallas with regards to the foreclosure of primary residences, but also French President Hollande that upon his visit in Athens last week he ruled out any discussion on possible evictions. The thing is that the Greek government is pressed by the ECB and the European Commission to find a solution along with the envoys of the institutions. Similar will be the pressure by Commission's VP Dobrovskis, arrived today in Athens: implementation of measures and concessions on hot topics have to be the priority for the Greek government so that EU structural funds can be released and investment projects to start soaring the economy. Nonetheless, on the foreclosures issue, the Greek government intends to bring it in front of an EU Summit and seek for a political solution as social anxiety surges.
Meantime, many representatives of hedge funds have visited Athens during the previous couple of weeks, showing strong interest for specific sectors, like tourism, hotel units and resorts in the Greek islands and the most popular areas. The idea is to bring in fresh investment to indebted enterprises counting on the low prices of such assets after almost eight (8) years of recession.
As we have pointed out in a previous report, NPLs are estimated around €100 billion with the recapitalization process to be inextricably interwoven with NPLs talks. On the graphic above, investment NPLs share a very big part of the overall loans in the respective market ( 44%), while the textile, agriculture and commerce industries are amid the most affected ones. A good sign in the midst of ongoing negotiations between the Greek government and the creditors is the fact that buying interest for state and banks bonds steadily grows (i.e. distress debt investing). The major explanation for that is ECB's safety net or, in other words, the fact that Frankfurt operates as a last resort buyer, willing to compensate bond buyers/holders in case of fruitless negotiations or unexpected developments.
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Dimitris Rapidis is Director at Bridging Europe. Martin Foehler is Policy Analyst at Bridging Europe.
October 26, 2015