Greek Banks Didn’t Want Foreclosures

ATHENS – While Prime Minister Antonis Samaras’ coalition government celebrated when Parliament approved a unified property tax and a partial lifting of a ban on foreclosures, Greek banks weren’t happy about it.

Pressured by international lenders, the New Democracy Conservative party leader and his partner, PASOK Socialist chief Evangelos Venizelos – whose party put the foreclosure moratorium in place two years ago in a different government – went along with the confiscations that will begin Jan. 1.

There were protections, such as exempting homes with values up to 200,000 euros ($270,000) in households with incomes under 35,000 euros ($47,900) for one year, but thousands of homes will be lost among the 230,000 households that can’t pay.

And that, say Greek banks, will be counterproductive and drive down the value of the homes they take in a crushing economic crisis when there aren’t any buyers, and will leave them as managers of abandoned properties.

The government said as many as 85-90 percent of households will be protected for now, which means it suffered the double whammy of vicious bad publicity and left banks with little collateral to go after at the same time.

There are other conditions, such as a limit on how much mortgagors in default will be required to pay and Greek banks said they don’t think the deal was worth it.

In an analysis, the Wall Street Journal noted that Greece’s Big Four – Alpha Bank, Piraeus Bank, Eurobank and Bank of Greece – who are seeing bad loans skyrocket are betwixt and between over the partial lifting of the ban.

“In a normal, healthy banking system, most lenders generally want the freedom to seize the collateral of defaulted borrowers. So it is a measure of how deeply troubled Greece’s banking system remains that the industry is lobbying, both in Athens and Brussels, to preserve a legal moratorium against banks foreclosing on defaulted mortgages,” it wrote ahead of the vote.

But, the paper noted, “After a deep, six-year recession, a pricked property bubble, panicky depositors, and a €200 billion ($275 billion) sovereign debt restructuring, Greece’s banks are in a world of hurt.”

The government put up 50 billion euros ($68.47 billion) from bailout loans to recapitalize the banks who were driven down when the previous PASOK government in which Venizelos served as finance minister imposed 74 percent losses on investors and bond holders, including those in the Diaspora.

Despite that, the crisis and austerity measures have left many Greeks unable to pay with non-performing loans as high as 42 percent, totaling some $70 billion, a sum equal to a third of the country’s Gross Domestic Product (GDP).

Some 24% of Greek mortgages, or €17.4 billion worth, are in default, according to Bank of Greece data. Greek real-estate prices are already down a third from their peak. A wave of repossessions, followed by widespread sales of the homes at discounted prices, could push prices down another 10% to 15%, analysts told the Journal.

And that would force the banks to mark down the collateral on their remaining property loans that haven’t gone sour, potentially tearing a new multi-billion-euro hole in their balance sheets.

The country’s two largest banks, National Bank of Greece and Piraeus Bank, are setting up in-house divisions to manage and potentially sell some of their bad loans to investors. “No other country has had to deal with such a flood of bad loans,” a senior Piraeus executive said.

“The banks certainly agree with extending the ban and their efforts are aimed at making sure it’s not eliminated,” said Paris Matzavras, an analyst at Pantelakis Securities. “Extending it is the best case for the banks, rather than a wave of foreclosures that will depress the real-estate market further and weigh on their loan books.”

The government said its initial target is people who exploited the ban, which could be as many as 10-20 percent. But banks are wary.

“We have no interest or desire, or the administrative capacity, to turn our banks into real-estate agencies,” said a senior banker at one of Greece’s Big Four lenders.

Samaras earlier this year set aside a bill he had promised to implement which would provide relief for indebted households and provide assistance for homeowners to restructure their loans. In the end, he decided to let the banks have what they want, just when they didn’t want it.