Greek Bank’s Return to Risky Investment

Michael Sallas, the chairman of the Greek financial giant Piraeus Bank.

Πηγή: New York Times
By LANDON THOMAS JR.
May 16 2014

Investing in Greece’s banks was never for the cautious. But for the parade of hedge fund managers who have piled into the Greek financial giant Piraeus Bank, the bank’s latest deal has surely resulted in a dose of heartburn.

After raising billions of euros from equity and bond investors, the ambitious chairman of Piraeus, Michael Sallas, shocked the market on Friday by spending 250 million euros — half the amount the bank raised in an oversubscribed bond offering in April — to acquire a 17 percent stake in the Marfin Investment Group, one of Greece’s most indebted companies.

At a time when stretched Greek banks are taking extreme steps to raise cash, borrowing in ever larger amounts from the European Central Bank and unloading prized assets, the Piraeus move came as quite the surprise and the stock in the bank fell 11 percent for the day.

Among Piraeus’s larger investors is John Paulson, whose big bets on Greek banks have paid off significantly.

According to announcements from both Piraeus and Marfin, Piraeus will buy 250 million euros in convertible bonds, which, in time, will convert to a 17 percent stake in the company.

Marfin is a holding company with investments in health care, food products and transportation that has long been run by Andreas Vgenopoulos, a brazen deal maker who was also the chairman of Laiki Bank, the failed Cypriot bank. According to its 2013 annual report, the company had debt three times the size of its equity cushion.

Historically in Europe, large banks have had equity stakes in industrial concerns. But during the recent banking crisis in the euro zone, regulators have discouraged banks from these types of investments with the view that banks should use these resources to bolster their capital or make new loans.

In Greece, where European taxpayers financed a 40 billion euro bailout, regulators have been particularly vocal in arguing that Greek banks should refrain from taking equity stakes in nonfinancial companies. Before the country’s economic troubles, Greek banks had a reputation for making loans on friendly terms to companies that they have a stake in.

The deal is the latest in a long line of transactions between Mr. Sallas and Mr. Vgenopoulos. In 2001, Mr. Vgenopoulos bought a small bank from Piraeus that would go on to become Laiki. According to internal audit reports from the bank, during Mr. Vgenopoulos’s time as chairman, Laiki lent over 100 million euros($132 million) to entities controlled by Mr. Sallas for the purpose of buying back Piraeus shares.

In their report, auditors at Laiki report alleged that there was a quid pro quo relationship between Mr. Sallas and Mr. Vgenopoulos, a claim that has been refuted by both parties.