U.S. billionaire investor Wilbur Ross said a current review of the capital needs of Greek lenders by the European Central Bank is too conservative and may result in an unnecessary burden for European taxpayers.
The latest aid package allocates as much as 25 billion euros ($28.3 billion) for National Bank of Greece SA, Piraeus Bank SA, Eurobank Ergasias SA and Alpha Bank AE.
“The real issue is the real probability that the baseline scenario being used is too pessimistic and therefore the stress case is totally off the chart,” Ross, who runs WL Ross & Co, said today in a telephone interview from New York.
His investment firm joined other investors in injecting 1.3 billion euros into Eurobank last year.
Greece received its third bailout since 2010 after months of difficult, all-night deliberations that threatened the nation’s membership in the common currency and forced the country to impose capital controls.
The ECB, the International Monetary Fund, the European Commission and European Stability Mechanism should make the 25 billion euros an unconditional commitment for three years “and let the ECB feed it into the banks, if and as when, it sees an individual bank needing capital,” Ross said.
In that way “the investment of the Greek government and international investors, including mine, would only be diluted on actual facts and not on opinion,” he said.
The ECB review of Greek banks is on track to be completed by the end of October and, if needed, lenders could access some recapitalization funds from Greece’s bailout relatively quickly, European Stability Mechanism Chief Klaus Regling said Sept. 12. The analysis includes a balance sheet assessment and stress test for Greece’s most important banks.
Ross points to specific precedents in Ireland, Cyprus and Spain where capital needs were exaggerated. In 2013, 1 billion euros of the 2.5 billion euros earmarked for Cypriot lenders wasn’t used, nor was 10.9 billion euros set aside for the previous recapitalization of Greek banks in 2014, he said.
Official forecasts used in the assessment of Greek banks could turn out to be way too negative given that Greece’s economy keeps surprising, Ross said. The euro area’s most indebted country unexpectedly returned to growth in the second quarter despite capital controls and the political turmoil.
Greek lenders had been doing “very well” and they still have very good pre-provision earnings with a “decent” return on assets in the first quarter, he said. A breakdown of Greek gross domestic product showed total consumption expenditure rose 1.1 percent while exports grew 0.1 percent.
Moreover, whoever wins Greek elections, “will be a more centrist and more stable government than the country has had before which is important as it was the previous government that created the liquidity problem for the banks,” he said.
The 77-year-old investor, who made his fortune betting on distressed assets, warned there were only a handful of international investors willing to put money into Greece even under what looked like better circumstances.
If those investors feel that they’re “unfairly treated by a rash rush to decision and therefore unnecessarily diluted, they won’t come back,” he said.
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