Investor Unease Hangs Over Greece Ahead of Vote -- Update 2

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 [e-mail]

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