Fairfax’s Potential Hit from Greek Exposure to be Limited

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Fairfax Financial Holdings, which bet on a successful turnaround in Greece in 2014, stands to take a hit from a Greek default, but one-time gains and other factors are likely to soften the blow, the Royal Bank of Canada (RBC) said in a note on Monday.

Analyst Mark Dwelle said that despite the spiraling Greek crisis, he did not expect a significant reduction to Fairfax’s book value in the second quarter since certain write-downs have already been booked.

Fairfax shares were down just 1.8 percent at C$629.46 [US$507.72] even as Canada’s S&P/TSX composite index fell more than 1.9 percent as investors fretted about the risk of a Greek exit from the euro.

Fairfax CEO Prem Watsa had told Reuters on June 19 that Fairfax’s exposure to Greece would be “very manageable” even if a debt deal fails to materialize.

“We don’t see this as being too much of a concern,” he said, noting that write-downs were already booked on the value of equity stakes and the fact that the investments make up only a small part of Fairfax’s overall portfolio.

Fairfax was not immediately available for comment on Monday on its exposure in the event of a default, as the breakdown in talks between Greece and its creditors pushed the country closer to a default on its loans and possibly out of the currency bloc.

LIMITED EXPOSURE
Dwelle estimates that Fairfax owns Greek sovereign bonds with a carrying value of about $179 million that were purchased during the 2012-2013 debt crisis. He puts Fairfax’s equity exposure in Greece at about $500 million.

Fairfax last year became a key player in the bailout of one of Greece’s largest lenders, Eurobank Ergasias, after it bought a 13.6 percent stake in the bank. The Toronto-based firm boosted its position in April, buying another 151 million shares for 14.4 million euros ($16 million).

Fairfax has also bet on two other Greek companies, real estate investor Grivalia Properties and industrial group Mytilineos. Both stocks have fallen because of the uncertain Greek debt deal.

Fairfax also bought the Greek arm of European home improvement retailer Praktiker for about $25 million in 2014.

“We wouldn’t expect any of these investments to be fully written off,” said Dwelle. “It’s likely that all have at least some residual value, and Fairfax doesn’t have any present liquidity needs which would force it to recognize losses via a sale.”

(Reporting by Euan Rocha; Editing by Lisa Von Ahn)