In an interview with Kathimerini, Indo-Canadian billionaire Prem Watsa, head of Fairfax Financial Holdings, expresses optimism that Greece can achieve a strong economic recovery in the coming years.
Apart from Eurobank and Grivalia Properties REIC, a Greece-based real estate investment company, Watsa has also invested in the Eurolife ERB insurance group and other companies.
The country’s positive economic outlook prompted his decision to move ahead with the merger of Eurobank and Grivalia, a move that will allow the bank’s big pile of nonperforming loans to be reduced at a faster rate, while boosting its capital base. In that context he notes that the plan will be completed with no need for additional capital.
“Given the depression that Greece has gone through, I do not think it is overly optimistic to expect the economy to recover significantly over the coming years to make up for the huge decline Greece has suffered,” he says. He also urges “all Greek governments” to adopt business-friendly policies if they wish to attract foreign investment.
What is your main goal in terms of your last move regarding Eurobank? Was that a defensive move?
Our main goal was to support the management teams of Eurobank and Grivalia led by Fokion Karavias and George Chryssikos. We are long-term investors and we are excited about what the merger will mean for Eurobank, its Greek clients and Greece as a country. No, this was not a defensive move, but a transformative opportunity for Eurobank and Grivalia.
For the plan to be completed there is a need for additional capital. Where is that going to come from?
For the plan to be completed there is no need for additional capital. Through the merger of Eurobank and Grivalia, Grivalia will contribute approximately 900 million euros in additional capital to Eurobank.
Investors seem to be cautious about the health of the Greek banking system and its recapitalization needs. What are your views on that?
Eurobank will become the best, most highly capitalized bank in Greece with the removal of 7 billion euros of nonperforming loans from Eurobank. This will put Eurobank’s NPL problem behind it and will allow it to expand significantly, with the Greek economy, generating in excess of 10 percent return on its shareholder capital.
You seem to have faith in the future of Greece and its economy despite the recent turbulence that took a toll on your investments as well. What do you base your optimism on?
I base my optimism on history. For example, recently, in 2011, Ireland went through a very difficult economic time when its gross domestic product dropped on a cumulative basis by approximately 14 percent. Ireland could not borrow any money at that time and long-term Irish government rates were approximately 14 percent. Most government agencies, including the Irish government, the International Monetary Fund and the troika forecast GDP growth for the next few years to be approximately 2 percent per year. What actually transpired was Irish GDP growth was in excess of 5 percent annually for the following three years. Irish government rates soon dropped to less than 1 percent. Similarly, Greece has gone through a depression, worse than the United States in the 1930s. Greece’s GDP has dropped by more than 25 percent in almost eight years. More recently, unemployment has dropped from 30 to 20 percent and Greece’s GDP is recovering. Long-term Greek interest rates have dropped from in excess of 20 percent to about 4 percent. Given the depression that Greece has gone through, I do not think it is overly optimistic to expect the economy to recover significantly over the coming years to make up for the huge decline Greece has suffered. Also, Greece has completed its program with the troika and has gained access to the bond market.
Are there any game changers, specific moves by any Greek government, that would convince other investors to follow your example?
My experience, all over the world, is that economies do well when business-friendly policies are followed. I would recommend that highly to all Greek governments.