John Paulson and a clutch of bullish U.S. hedge funds are leading a charge into Greek banks, confident that Greece, long seen as the weakest economy of the euro zone periphery, is on the turn.
Such is the strength of their interest that Greece's big banks are now lobbying the government to consider expediting re-privatization of the long-troubled sector. Mr Paulson, best known for his successful wager against the U.S. sub-prime mortgage market in 2007, praised Greece's "very favorable pro-business government".
"The Greek economy is improving, which should benefit the banking sector," Mr Paulson told the Financial Times. He confirmed his fund, Paulson & Co, had substantial stakes in Piraeus and Alpha, the two banks that have emerged in best shape from the crisis. "[Both] are now very well capitalized and poised to recover [with] good management," he said in rare public comments.
(Read more: Greece's problems are still Germany's problems)
Paulson is the highest profile of the hedge funds to invest aggressively into Greek banks. Others include Baupost, Eaglevale, Dromeus Capital, Falcon Edge, York Capital and Och-Ziff , according to people close to the situation. Long-only funds, including Wellington Capital Group and Fidelity, have also taken positions.
Unlike in Spain and Ireland, where problems in the banking system caused a broader crisis, banks in Greece were largely victims of economic mismanagement. As the biggest holders of government bonds, the banks suffered heavy losses as a result of the sovereign debt restructuring.
Alpha and Piraeus have generally been seen as the most attractive bets after recapitalization exercises earlier this year – dominated by bail-out money – still left 16 per cent and nearly 20 per cent respectively in private hands.
(Read more: Greece's Piraeus Bank warns of rising bad loans)
The share prices of both Alpha and Piraeus are up a modest 8 per cent since the capital raisings. But the separately traded warrants, given to investors alongside the shares, have risen more than 100 percent and 80 percent, respectively.
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The warrants can be swapped for shares at a predetermined level. The sooner that exchange happens, the quicker the banks' ownership will transfer from the state to the private sector. "It would be good to find a way to accelerate further privatization," said Vassilios Psaltis, Alpha's finance director. "[Investor] demand is growing strongly."
But bankers believe the conversion prices are too high to tempt hedge fund investors. "The banks and the government would like re-privatization to be speeded up by lowering the trigger prices," said one banker. "But the Troika is the problem." The three-way Greek bailout agreement, overseen by the European Commission, European Central Bank and the IMF, would be likely to resist any renegotiation of the terms of the banks' bailout, bankers concede.