By Eleftheria Kourtali

Billionaire hedge fund manager John Paulson gives a strong "vote of confidence" to Greece, the Athens Stock Exchange, the Greek banks as well as the government, in an interview with Capital.gr.

The story of Mr. Paulson in Greece, as is well known, began several years ago as he chose to invest in our country during the very difficult period of the memorandums, taking positions in Greek banks, a bet which proved to be difficult and costly. 

However, today, with Greece having climbed several levels on the ladder of investment ratings - from the junk category that it collapsed to in 2010, to investment grade status now -, he has many reasons to be optimistic.

The experienced investor - who is reportedly high on Donald Trump's preferences as the next US Treasury secretary if he is elected in November-, believes that the strong performance of the Greek economy will continue, while despite the already impressive performance recorded in recent years, he believes that the Greek stock market is still undervalued and offers significant investment opportunities.

After all, in addition to being a key shareholder of Piraeus Bank, he owns 9.99% of Athens Water and is also positioned in Alpha Bank, while he participates with significant percentages in the special purpose companies that trade on the Alternative Market of the Greek Stock Exchange - Phoenix Vega Mezz, SunriseMezz and Galaxy Cosmos Mezz.

He talks about the reasons that led to the very successful placement of Piraeus Bank, in which he holds 18.62%, and gives credit to the personal success story of the systemic bank's CEO, Mr. Christos Megalou, estimating that he will create more value for Piraeus form here.

Mr. Paulson, who continues to invest and support Greece, as he has pointed out in recent speeches at the annual Capital Link Invest in Greece Forum in the USA, is particularly optimistic about the prospects of Greek banks in general and says that if Greece continues the program of administrative reform, fiscal prudence and investment-led growth, can grow for decades and become an economic model to other European countries.

Greece’s transformation since the debt crisis is remarkable and after 13 years it regained investment grade rating in 2023. Do you believe that this positive performance will continue? What are the factors/catalysts that support your view and what are the risks ahead? 

The return to investment grade status is a testament to the exceptional turnaround that Greece has achieved under the leadership of Prime Minister Mitsotakis. Since 2019, even with the pandemic GDP has grown by over 8%, unemployment has declined from 19% in 2018 to 11% currently, residential real estate prices are up by 50%, and tourist arrivals have hit record levels. These positive trends are continuing. Currently, GDP growth is trending above 2% per annum, markedly higher than the Euro area average of almost zero growth. Residential real estate prices were up by 12% in the third quarter of 2023, compared to a decline of 2.1% in the Euro area. €36 billion of NextGenerationEU funds are slated to come to Greece, which correspond to 17% of GDP, the highest percentage for any of the EU countries. 

Given all these positive developments, it’s no surprise that the Greek stock market was up by approximately 40% in 2023, and that the economic sentiment indicator in Greece is clearly in expansionary territory at 108.4, far above the contractionary Euro area average of 96.3. This tells us that individuals, businesses, and investors all have growing confidence in Greece’s future. We share the optimism. 

In terms of risks, there is always the possibility of external shocks, but the good news is that Greece has become much more resilient. To safeguard its hard-won gains and maintain its upwards trajectory, Greece is continuing to improve its administrative functioning. A more efficient government will help to speed up investments and unleash entrepreneurial activity. There is also the potential to further reduce the tax burden on the private sector, while maintaining fiscal prudence. Prime Minister Mitsotakis is pursuing the right mix of pro-investment policies and reforms. Greece is very fortunate to have him as its leader

The Greek Stock market has had a strong performance recently. In 2023, it secured the 2nd position among the world's largest stock exchanges, based on the performance of the General Index. Do you believe that Greek assets are still attractive? Where do you see the biggest opportunities? 

Despite its impressive performance, the Greek stock market is still undervalued and we believe there remains considerable upside. Take Piraeus Bank, for example. Although its stock price was up 120% in 2023 and another 20% in the first quarter of this year, Piraeus still trades at only 5x 2024 consensus earnings and 65% of book value. European banks with similar financial and performance metrics trade at or above the book value, implying upside of 50% or more. Real estate is another area with significant upside. Despite the already eye-catching performance, real estate prices still remain below the prior 2008 peak. As the Greek economy continues to outperform others in the Euro area, we expect further investment inflows into these market segments that remain undervalued.

You are the biggest private investor in Piraeus Bank. Piraeus has had an impressive turnaround; its stock has rallied and the divestment of the Hellenic Financial Stability Fund was a great success. What are your thoughts on these developments around Piraeus?

Credit must go to the CEO, Christos Megalou, who has delivered a stellar performance. He has removed the NPEs from the balance sheet, cut costs, diversified revenue lines, built up capital, and delivered strong earnings, all leading to a very successful privatization.The HFSF’s €1.35 billion placement was nine times oversubscribed, which is a ringing market endorsement of both Piraeus Bank and Greece.Christos’ track record gives us confidence that he will create more value from here.

What is your view on the Greek banking sector in general? How close are Greek Banks to European normality? What are the challenges ahead?

After a long period of restructuring, the Greek banks have emerged in a strong position, with high asset quality, large capital buffers, efficient cost structures, ample liquidity and high profitability.On all these metrics, the Greek banks, generally speaking, meet or exceed the performance of their European peers. We expect dividends to start this year, which will be another positive milestone.As regards the outlook, the prospects appear bright. A growing economy will support loan growth and asset quality, maintaining earnings at attractive levels, while further boosting capital buffers and dividend payout capacity.Uniquely, Piraeus also has plans to create a new pan-European digital bank, which has enormous potential. The digital bank will allow Piraeus to offer banking services digitally across the entire EU, a market of 450 million people, which is more than 40 times larger than the Greek market alone. We are excited about Piraeus’ digital bank, which is an opportunity that is not currently appreciated by the market.While the next four years under Prime Minister Mitsotakis are secure, the biggest challenge to the continued economic recovery would be a change of government. We think the Greek people realize the benefits of Prime Minister Mitsotakis’ economic strategy and will elect future governments that will continue on this very positive path.As Greece continues this program of administrative reform, fiscal prudence and investment-led growth, Greece can grow for decades and become an economic model to other European countries.