And now the end is near…. and so they face the final curtain. My friend, I’ll say it clear, they’ll state their case, of which they’re certain. They’ve lived a life that’s full, they’ve traveled each and every highway; And more, much more than this,
they did it their way…. But they lost. Thousands of business “red loans”‘ and non-performing “property loans” are to be sold to Distress Funds as soon as the multi-bill is voted in the Greek parliament tomorrow Tuesday. After 6 years of economic crisis, a market place is finally open: the market place of “Red Loans”.
“The total amount of the non-performing big business loans and mortgages (linked to second or third residence, or holiday homes and investment in property) is some 40 billion euro.” (TheToc.gr)
The banks are eager to get rid of loans that have not been served for more than 90 days. The Distress Funds -mostly foreign- are eager to grab the loans at spot prices something like 20% of their value and “even give new loans to the borrowers to serve their old loan,” as I heard this morning on a private television channel.
“Companies buying the “red loans” will be able to grant new loans to the borrowers so that they can finance their loans. The Bank of Greece will give permission for such cases.”
For the time being, there is a “protection period” for the “first residence mortgages”. Their fate will be object of bargain between Greece and its creditors in January and it will depend on the creditors’ review of the Greek adjustment program. Also ‘protected’ until February 15th are reportedly “consumption loans” and “loans of small & medium enterprises” as wells as “loans with the guarantee of the Greek state.”
For sale will be the red loans that have not been served for over 90 days but also the serving loans of the same borrower.
The banks are reportedly obliged to notify the borrower 12 months in advance about the planned sale of his red loan, except for uncooperative borrowers.
However, Mega TV reported today that funds have not been served for 30 days until December 15th will get notification urging the borrowers to rush to the banks and proceed with “arrangements.”
Loan collection companies are to be assigned with the sensitive issue of informing the borrowers about the upcoming sale of the loans to the distress funds.
All distress funds authorized to deal with the “red loans” will be disclosed by the Bank of Greece which will also have the control and the supervision on the issue.
In an unprecedented move for the Greek bureaucracy tradition for when it comes to open a business, distress funds companies can get license to operate within 20 days, provided their starting capital is at least 100,000 euro.
The funds have to have their headquarters in Greece or in the EU and have a branch in Greece. The identity of shareholders and advisers, the organizational structure, the business plan and the methods of managing the Red Loans have to be disclosed.
Distress funds interested in Greek loans
Last week, daily Imerisia reported that representatives of many funds had visited Athens. Among them were representatives of the Spanish Actua -which intends to work with the Alpha Bank– , of Apollo Global Management, the Spanish Sareb, the Altamira, also the Credit M, Spinnaker Capital, Invel Real Estate Partners, the Axia Ventures Group.
According to website TheToc.gr, interested to buy red loans are also companies like the Oaktree Capital, the York Capital Management, the Paulson Fund, the Valde Capital Investment, the Marathon Asset Management, the Baubost and Strategic.
Most important investment in Greece that destroys jobs
“Many believe that the purchase of the “red loans” will be the largest foreign direct investment that can be made in Greece in the coming months,” Imerisia notes stressing that “the foreign joint ventures are already stakeholders of the Greek banks through the recapitalization.”
The daily notes further, that among the plans of the distress funds is the closing of thousands of businesses with “corporate red loans” if they found to be “heavily indebted” and “unsustainable”.
Even if not confirmed, there is talk in the media, that about “4,000 businesses will close down.” That’s a fine perspective for 2016 in a country with unemployment stuck at 25%.
Alternative solution is restructuring and/or, equity exchange for part of the loan. The restructuring plan selling of subsidiaries, reducing operating costs, reduce expenditure, adjustment of other loans or even removal of director boards that do not cooperate with the banks. This could save thousands of jobs.
There are estimations that “of from 35% of the bad loans around 10% – 15% are those that can not be adjusted and are an obstacle to the development of the Greek economy.”
According to Imerisia, all kinds of red loans in Greek banks amount “107 billion euro.”
Benefits for all
In the explanatory reasoning stated on the bill, it is noted among others that the proposed arrangements will create a secondary market of non-performing loans”.
“The credit institution will be able to immediately enhance its liquidity directly collecting a portion of the fee, which is doubtful that they would receive by enforcement of the law and in any case they would have received much later.
On the other hand, the borrower can negotiate more favorable repayment conditions than the ones he could meet with the credit institution because the transferee [the distress fund] would have bought the red loan at a price much lower than the nominal value.”
“Therefore a repayment proposal by the distress fund will be better than the one made by the banks, and thus being profitable for the fund,” the legislator notes.
Before we burst into tears for the noble cause the distress funds present, we should note this:
- closure of businesses after six years of austerity and recession will give the final shot to the thousands of unemployed men and women.
- the banks that year after year gave generous loan over loan to big Greek businesses without sufficient guarantees and made arrangements according that nobody would keep should also partly pay the price and go ahead with a good example like changing the board of directors.
- I remember ten years ago, a bank was willing to give to an aunt of mine, 75, a loan of 5,000 euro who wanted to make some changes in her home. Her children manage to persuade the elderly lady to refrain from diving deep in a ‘loan’ she would never be able to pay back.
- Legal investigation about the generous loans and the credit cards party of the previous decades should be made.
- Because citizens who never got neither a loan nor overcharged their credit cards, are called to pay the price for the borrowed money party.
Loan to Political parties and NGOs
The loans of Communist KKE amount 4 million euro and by SYRIZA 8 million, but these two parties reportedly pay their loans back regularly.
Of course, there are also the non-performing loans of the many Greek non-governmental organizations, who were given loans by the banks “after orders from above” and without guarantees. The amount of loans is kept like a “sealed secret.
According to a law voted by Samaras’ government and PASOK in 2013, there is practically an “amnesty” to political parties and the banks for the loans that were given. According to this Law, neither bankers nor borrowers (politicians, political parties, NGOs etc) can be prosecuted for loans that were given without collateral.
Now, the government plans to change amend this Law even though it is difficult to have retrospective prosecutions according to the Constitution.
The non-performing loans of Megaron Mousikis
One of the biggest loans scandals is the case of the Athens Concert Hall, the Megaron Mousikis, with its loans amounting 381,500,000 euro – €240 million capital and the rest interest. The loans were given with the guarantee of the Greek state. With Law 3943/2011, the Greek state took over to serve the loan of 95 million euro given to Megaron by the National Bank.
Megaron Mousikis was founded in 1981 by media mogul Christos Lambrakis as a non-profit-making organization administered by a board of trustees, half of whose members are appointed by the Ministry of Culture, Education and Religious Affairs, and half by the Friends of Music – also a non-profit-making charitable association.
The head of Megaron Mousikis Ioannis Manos said recently that “the economic downturn of Megaron is not due to operational difficulties. If there are financial problems, they are due to loans taken by the Megaron in 2004 and 2007, with the support of the then governments and at the instigation of these in order to repay the second building complex.”
According to Avgi.gr, the Megaron has also debts of 11.5 million euro to Public Power Company, social security fund IKA, to suppliers and the tax office.
PS to be fair … as the distress funds will have to open branches in Greece, they will certainly also create jobs. I suppose, if one is not skilled in economics and loans, one can still get a job as “telephone operator” or “cleaner”. Even I would submit my CV as phone girl, cleaner or coffee maker had I knew of the relevant email, something like <info @ getajobatdistressfund.now >