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There are many surprising aspects to last week’s successful capital raising by Greece’s Eurobank.
The size, for one thing, is astonishing. Investors are pumping €2.9bn into the country’s third-biggest bank. The flip in sentiment is dramatic, too. Just a year on from near-total nationalisation, Eurobank is returning largely to private hands.
Two other Greek banks have also launched successful capital raisings, diluting government ownership. And National Bank of Greece will follow soon. At the same time, the Greek government is returning to international debt markets and the country’s industrial companies are attracting foreign investment. After four years of being ostracised, Greece is now the destination of choice for many global investors – not just big-punt hedge funds.
Behind it all is that clichéd “search for yield” in a persistently low interest rate environment. Amid rising confidence that even the most peripheral corners of the eurozone have put the crisis behind them, the still inflated returns on offer in the region have attracted a flood of foreign money into equities, debt, property, you name it. Greek equities in particular, up 28 per cent over the past year, have drawn all kinds of new investors.
Nothing illustrates the point better than the presence of Pimco among the top investors in Eurobank’s capital raising. The vast US bond house, slated for the performance of its core fixed-income fund last year, has taken a stake of about 1 per cent, according to people close to the deal. That puts it among the half-dozen or so leading shareholders, just behind a more predictable consortium led by Canada’s Fairfax insurance group.
Pimco has never been known for buying equities. Of its total assets under management of $1.94tn, equities account for only $9bn, and it is certainly unusual to see it in a prominent position in a relatively high-risk capital raising.
This may be the new playbook, though. After toying with expanding its equities franchise for a couple of years now, Pimco looks serious about the idea under the leadership of equities boss Virginie Maisonneuve, newly minted as a deputy chief investment officer.
Pimco sees good investment opportunities in Europe. Though the firm remains anchored in the US, Ms Maisonneuve is based in London. Expect other bold eurozone equity investments along the lines of the Eurobank deal. The firm has looked closely at other bank recapitalisations, including the attempt by Italy’s Monte dei Paschi di Siena to raise €5bn of fresh equity and Greece’s NBG.
Eurozone banks – especially relatively simple domestically focused ones – appear particularly appealing to investors at the moment. The sector’s ongoing asset quality review by the European Central Bank is serving three helpful purposes.
First, it is prompting capital raisings, bringing a supply of new equity. Second, it constitutes what one financier describes as a “free and thorough due diligence exercise on the whole sector” which could in time fuel premium-generating mergers and acquisitions. Third, the AQR – combined with the ongoing restructuring of legacy bad loans through the likes of national “bad banks” in Ireland (Nama) and Spain (Sareb) – is prompting a boom in large-scale asset sales.
This is the real area where a fast diversifying fund manager such as Pimco has been ramping up. Last year it was the lead investor in a new Irish real estate investment trust, Green Reit. More recently it anchored a Spanish reit, Grupo Lar. There have been plenty of under-the-radar bank portfolio acquisitions, too.
In all, Pimco’s non-fixed income assets – the bulk of them these kinds of “alternatives” – were $230bn at the end of March, up by nearly a third in 15 months. Such investments now account for 12 per cent of total assets under management, compared with 9 per cent at end-2012.
When even the world’s biggest bond fund joins the rush into eurozone equities and property, you know there’s a boom.
Bulls will see the matchup of eager asset buyers and more willing asset sellers in Europe as a sustainable antidote to the bearishness in the region since 2009. That, according to the upbeat narrative, should in turn allow recapitalised lenders to support a recovering broader economy.
The snag is the remaining uncertainty over what happens to the world when the drug of central bank economic stimulus is withdrawn – particularly in emerging markets where cheap dollars have underpinned asset price booms. Greece, like the rest of the eurozone, might look like a one-way recovery. But it is worth remembering that last year the country was reclassified as an emerging market.
Patrick Jenkins is the Financial Times’ Financial Editor
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