Greece's Eurobank to Acquire Grivalia Properties -- 2nd Update
November 26 2018 - 2:50PM
Dow Jones News
By Nektaria Stamouli and Vipal Monga
ATHENS -- Greece's Eurobank Ergasias SA said it will acquire
real-estate company Grivalia Properties REIC, boosting its capital
and paving the way for the creation of a "bad bank" to help deplete
its pile of nonperforming loans.
The deal gives Fairfax Financial Holdings Ltd., under Chairman
Prem Watsa, a 32.9% stake in the merged entity. The Canada-based
insurer currently holds an 18.2% stake in Eurobank, Greece's
third-largest lender by assets, and a 51.4% stake in Grivalia .
Eurobank on Monday said it plans to buy Grivalia in an all-share
acquisition that values the real-estate firm at EUR780 million
($884.4 million). That will strengthen its capital base by around
EUR900 million, and the merger will be completed by April, the bank
said.
Greece's state bailout fund for banks' share in Eurobank will
decrease after the deal to 1.4% from 2.4%. The fund was set up in
2010 to oversee three recapitalizations to the sector completed
with the help of state aid and still holds stakes in Greek
banks.
Mr. Watsa, one of Canada's best-known investors, has made
bullish statements on Greece's recovery. Fairfax has been investing
money in Greece since 2010, but Mr. Watsa's bets haven't turned out
well so far. Fairfax put roughly $1.42 billion into the country and
lost almost 30% on the investments by the end of last year,
according to the company's annual report.
Greek banks have been under heavy pressure for the past several
months amid fears that they can't digest their mountain of bad
loans and might need fresh capital. Nonperforming loans and other
assets at Greek banks, which have been recapitalized three times
during the country's debt crisis, total around half of their entire
portfolio.
Still, Mr. Watsa said he expects Greece's economy to grow
between 2% and 3% starting next year, and growth could surpass that
expectation. "They've been in a depression," he said, of Greece's
economy. "On the way up and out, economic growth can be
significant."
Fokion Karavias, Eurobank's chief executive, and George
Chryssikos, Grivalia's CEO, came up with the acquisition plan and
presented it to Fairfax in September, said Mr. Watsa, in an
interview. "The opportunity is very significant," he said. "We
liked it."
Mr. Karavias will be the combined bank's CEO, while Mr.
Chryssikos will become nonexecutive vice chairman of the board. Mr.
Watsa said the two will work together on the merged bank's plans,
including any expansion.
Eurobank said the acquisition would allow it to cut its ratio of
nonperforming loans to 15% of its total loan portfolio by the end
of 2019 and reduce it to single digits by 2021, from the current
39%.
After the merger, Eurobank will proceed with plans to create the
bad bank, where it would transfer some EUR7 billion of its bad
loans. Those loans are considered the "worst of the total sour
loans," an official from the bank said.
It is estimated that unloading these sore loans will reduce the
bank's capital by EUR1.1 billion to EUR1.4 billion, which will be
covered by the capital boost from the merger as well as a strategic
investor Eurobank intends to seek for its loan servicer, Eurobank
Financial Planning Services SA.
Eurobank said its plans for reducing its pile on nonperforming
loans been approved by the banking-supervision unit of the European
Central Bank. An ECB official declined to comment.
Greece's central bank and the government's bailout fund for
banks are currently working on two separate plans to finance a bad
bank. The biggest question is whether the European Commission will
deem the plans legal under the bloc's rules limiting state aid for
companies.
Eurobank said both plans, if eventually approved, could be
combined with its nonperforming-loan reduction plan.
Eurobank stock, which jumped as much 25% during the session,
ended the session 4.3% higher, while Grivalia gained 6.3%. Despite
the initial jump in the banking sector after the deal was
announced, the banking-stocks index dropped 0.1%. Greek bank stocks
have lost some 40% in the past three months.
Write to Vipal Monga at vipal.monga@wsj.com and Nektaria
Stamouli at nektaria.stamouli@wsj.com
(END) Dow Jones Newswires
November 26, 2018 14:35 ET (19:35 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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