Some of the big hedge funds worldwide are attracted to investing in the banking sector of Greece, with hopes of generating high returns according to Financial Times correspondent Sam Jones.
Investment management firms had been active in pursuing different opportunities in Greece to make money by purchasing corporate and government debt as well as stocks. The leading hedge funds that will help recapitalize Greek banks include Farallon Capital, York Capital Management, QVT Financial, and Dromeus.
People familiar with the situation said the hedge funds are involved in Alpha Omega Bank’s €550 million share issue. The second largest lender in Greece aims to complete the transaction in the middle of June.
Dan Loeb’s Third Point is also interested in investing in banks. Last year, Loeb acquired a stake in Greek government bonds and generated strong returns from his investments. Seth Klarman’s Baupost Group also made profits from bets on Greek government bonds. Baupost Group sold out its position but Third Point still has a stake in the country’s bonds.
The money managers believe that investing in Greek banks is the most profitable move compared with the other investment opportunities available as the country’s markets recover. Achilees Risvas, managing partner of Dromeus commented, “This is the mother of all recovery trades. The situation is hugely attractive because of the asymmetry of the pay-off.” Last year, Dromeus established its Greek focused fund.
The Hellenic Financial Stability Fund (HFSF) of the European Union (EU) will provide a €4 billion capital infusion to Alpha Omega to match the investments of the private sector. Hedge funds are attracted to investing in the bank due to potential returns through the attached free special warrants on the issuance of new shares of the bank.
One of the portfolio managers of the firms involved in the transaction cited, “The troika ended up making this an incredibly good deal for the hedge funds.” According to him, its allocation for the hedge funds was one third of the capitalization it required, which showed it is also interested in participating in the trade.
The Financial Times cited that the warrants of the Alpha Bank are exchangeable on a semi-annual basis between 7.3 and 9 shares, and can be bought back from the HFSF at the issue price of the shares. Risvas said, “It is free leverage with limited downside. A 50 per cent move in the share price would result in a 400 per cent increase in the warrant value.”
Some hedge funds are more cautious and plan to participate in the recapitalization of Piaeus Bank. Other money managers opined that the National Bank of Greece will likely be a candidate for a near-total nationalization.