Greece’s Piraeus Bank clears balance sheet, attracts international investment

Greece’s Piraeus Bank last week completed a share capital increase of €1.38 billion, and, in the process, attracted international investor interest.

Billionaire investor John Paulson was among a number of significant international investors who participated in the increase. He has reportedly upped his stake to 18.6 per cent from 4.6 per cent of shares.

Other major investors include the Norwegian Norges investment fund, a newcomer to Greek institutional placements, which has about €1.3 trillion in assets under management, along with Blackrock, Fidelity and Bain.

With this successful capital increase, Piraeus intends to reduce its NPE (non-performing loan) ratio to 3 per cent  or below from 45 per cent last year. Greek banks are still burdened with high NPE ratios from the country’s financial crisis which stretched from 2010 to 2018.

“Piraeus is embarking on one of the largest bad debt clean-ups we have seen among European banks” said Mehmet Sevim, a banking analyst at JPMorgan Chase, told the Financial Times. “This is clearly ambitious, yet we have seen from recent transactions by peers that there are good levels of investor interest for Greek securitisations, and we think that, if executed well, the plan will undoubtedly open a new page for Piraeus.”

Another reason for international investor interest is the relatively positive outlook for the country’s economy, largely due to the European Recovery Fund projects.  S&P in a report regarding the use of the Next Generation EU (NGEU) funding, estimates that the funding will cumulatively increase Greece’s GDP from 8.3 per cent to 18.3 per cent over 2020-2026. It notes that Greece has had the highest absorption rate of EU funds over the past seven years coming to 66 per cent, which means that there is a high possibility for effective absorption of the new round of funding. At the same time, the rating agency notes that the NGEU is supportive for the ratings assessments of European countries

Paulson started investing in Greek banks at the time their share prices hit historic lows

About 85 per cent of the new share issuance went to major international investors in a private placement – demand was reportedly eight times the offer.  The Greek state is understood to have cut its 61 per cent stake in the bank by half.

“This capital increase will enable Piraeus Bank to pursue its ultimate target for a definitive balance sheet clean-up in the next 12 months and fuel its ambition to be a strong, future-fit, well-capitalised bank, superiorly positioned to support the Greek economy as it recovers from the pandemic,” Piraeus Bank CEO Christos Megalou said in a statement.

Advisors for  Piraeus’s capital increase are Goldman Sachs, UBS and Morgan Stanley.