Eurobank picks up Grivalia properties to shake off bank loans

ATHENS – Aiming to shake off bad loans and raise capital, Greece’s third-largest lender, Eurobank, will scoop up real-estate company Grivalia for some 780 million euros ($880.09 million) and hopes to complete the merger by April, 2019.

The Wall Street Journal and Greek newspapers Kathimerini and Naftemporiki said the surprise announcement was part of a plan to cut Eurobank’s bad loans by 15 percent as it is in some cases not working with customers who can’t pay because of austerity and demanding 100 percent repayment without offering restructuring or settlements.

The move will remove seven billion euros ($7.9 billion) of Non-performing Loans (NPEs) from the bank’s balance sheet with a single transaction, with media reports pointing to the creation of a Special Purpose Vehicle (SPV) to receive the tranche.

The deal gives Fairfax Financial Holdings 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, said The Journal.

Greece’s state bailout fund for banks’ share in Eurobank will decrease after the deal to 1.4% from 2.4% the report added. The fund was set up in 2010 and gave Greek banks three bailouts of some 50 billion euros ($56.42 billion) from three international rescue packages of 326 billion euros ($367.83 billion) but it wasn’t enough because customers buried by big pay cuts, tax hikes, slashed pensions and worker firings couldn’t pay.

The move is a bit of gamble for Fairfax’s CEO Prem Watsa who said since 2014 he’s lost $600 million on Eurobank, the financial news agency Bloomberg reported and as the bank’s shares have fallen 31 percent in the last year as it’s been unable to shake off enough bad loans.

Fairfax has been investing money in Greece since 2010, but Watsa’s optimism has been wrong and costly with Fairfax losing some 30 percent of its $1.42 billion in investments, the company’s annual report showed.

Watsa said he expects Greece’s economy to grow between 2% and 3% starting next year, and growth could surpass that expectation. 

After the merger, Eurobank will proceed with plans to create the bad bank, where it would transfer the “worst of the total sour loans,” an official from the bank said which is expected to reduce the bank’s capital by 1.1 billion-1.4 billion euros ($1.24-$1.58 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, the reports said.

The new lender will have total capital of some 5.3 billion euros ($5.98 billion,) of which 900 million euros ($1.015 billion) will come from Grivalia.

Read more at thenationalherald.com

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