Fairfax Declines on Greek Investments

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Fairfax Financial Holdings Ltd., the Canadian insurer with investments in a Greek bank and retailer, posted its biggest decline in almost two months after the European country shut its banks as talks for a debt deal broke down.

Fairfax sank 1.9 percent to C$629.12 at 4 p.m. in Toronto trading, the biggest retreat since May 1. The stock has slumped 4.1 percent in four days, paring its advance for the year to 3.3 percent.

“The fact it’s trading down would have to correspond with its investments in Greece specifically,” Paul Holden, financials analyst at CIBC World Markets, said in a phone interview from Toronto. “Normally in a down market Fairfax trades up as it’s viewed as a hedge in a volatile market.”

Fairfax is the second-largest investor in Eurobank Ergasias SA, one of Greece’s four largest banks, with an 8.8 percent stake, according to data compiled by Bloomberg. Fairfax led a group of investors including WL Ross & Co.’s Wilbur Ross, Fidelity Investments and Mackenzie Investments to purchase a 1.3 billion euro ($1.48 billion) investment in Eurobank in April 2014, according to a March 6 shareholder letter from Fairfax Chief Executive Officer Prem Watsa. The Greek stock exchange was closed Monday, though a U.S. exchange-traded fund that tracks the Greek market plunged 20 percent.

Fairfax also holds 42 percent of Grivalia Properties REIC AE, making it the largest stakeholder, the data show. Grivalia has a portfolio of commercial properties in Greece. Toronto-based Fairfax also has stakes in Mytilineos Holdings SA, a commodities producer focused on energy and base metals production, as well as home improvement retailer Praktiker Greece.

Long Term

“While our total Greek investments are below cost today, we expect them to do well over the long term,” Watsa said in the letter.

Requests for comment from Watsa and Paul Rivett, president of Fairfax, weren’t returned.

While Holden hasn’t spoken with Fairfax executives recently, it’s unlikely that the firm’s view on Greece has changed enough for them to sell their holdings, Holden said.

“When they take these deep-value, contrarian-type bets, they tend to show commitment to their trade ideas,” he said. “So I wouldn’t expect just because things aren’t working out in the near term they’ll necessarily rush to the exits unless their view of Greece truly has changed.”

Fairfax has two buys, two holds and one sell rating according to a summary of analysts’ recommendations, with a consensus 12-month price target of C$679.37, implying an 8 percent gain.

Europe Exposure

A team of analysts at Canaccord Genuity Corp. in Toronto said many Canadian stocks with exposure to Europe and Greece will come under pressure, including gas bar operator Alimentation Couche-Tard Inc., which tumbled 2.2 percent, and auto-parts makers Magna International Inc. and Linamar Corp., declining at least 3.3 percent. Others include Vermilion Energy Inc., down 2.6 percent, and Bombardier Inc., which lost 2.5 percent.

Gabriel Dechaine, an analyst at Canaccord in Toronto, said Canadian lenders Royal Bank of Canada and Bank of Nova Scotia have the most exposure to Europe.

“Their exposures to broader Europe may receive some undue attention from the market,” Dechaine said in the report. “We do not have major concerns at this stage.”

Eldorado Gold Corp., another Canadian company with investments in Greece, said it will be able to sustain operations and pay workers even as the nation imposes capital controls. The stock rose 1 percent.

The Vancouver-based gold producer, whose assets include the Stratoni mine and three projects in Northern Greece, said its subsidiaries continue to pay employees and contractors, primarily via wire transfer.

“The company will continue to support its investment in Greece,” Paul Wright, Eldorado chief executive officer, said in a statement.