Last week an unexpected
development came to surface in the Greek banking industry. The root of the
cause was with the bank of Piraeus (BoP) and the Single Supervisory Mechanism
board’s (SSM) decision to recall the already approved appointment of a new CEO
to the BoP.
The SSM is a new system of
banking supervision for Europe, it comprises of the ECB and the national
supervisory authorities. The SSM checks that the banks comply with the EU
banking rules. It looks at ways banks borrow and invest money, it assesses if
banks are fit to operate. It has the power to require banks to hold more money
on reserve as safety net. It has granted the ECB a supervisory role in
monitoring the financial stability of the banks in the participating states.
SSM withdrew it’s already
approval of the appointment of a new CEO in the Bank of Piraeus, and demanded
the approval of a person close to its interests. Many reports say that this
decision is a first step in Hedge funds gaining control of the banks, their non
– performing loans (NPL), and through this gain access to the Greek economy.
Many sectors in the Greek economy have bank loans, many of which are non
performing.
The hedge fund which
appointed its preferred CEO has a 10% stake in the bank of Piraeus, and 50% of
the loans outstanding by the specific bank are towards businesses in sectors
such as shipping, retail, etc...
A second development which enhances
the fear of foreign hedge funds gaining control of the Greek banks, is the fact
that the SSM has decided to change the current corporate governance of the
Greek banks. Current members of the board of directors have been notified they
are no longer qualified, and to submit their resignation. They are not allowed
to participate in the newly formed board. The reason is that they do not have a
banking experience, or come from the banking sector.
It is true that common practice
up to recently is that CEO’s of banks were appointed by political parties in
power, and so did the members of the board of directors. The logic behind is
that those appointed had a background from the real economy, from the market.
The logic behind the SSM is that the new way of appointing CEO’s and members of
the board, would be more independent, with non-political influence.
The third change is that of
the Hellenic Financial Stability Fund (HFSF). It was created in 2010 and its
purpose is to contribute to the stability of the Greek banking system, and
provides capital enhancement to the Greek banks, it monitors and assesses the
degree of compliance by the Greek banks that have received capital, their
compliance and degree of restructuring, and their simultaneous financial
autonomy.
The SSM demanded that three members
of the executive committee from the HFSF be replaced as they do not fit the
criteria of having a prior banking experience.
Within the banking industry there
are rumors that the hedge funds indirectly are trying to take complete control
of the Greek banks, and the NPL’s. In addition the fact that the SSM has set
new standards for appointments of the CEO and the board of directors, means
that they are expecting to fulfill some standards that have been set aside.
For example, the Greek banks
and the SSM had set a target (2017 – 2019) for the reduction of the NPL’s, and
the business plans by the end of this coming September. The pressure was
reinforced by the Brexit, as well as the problems with Italy’s banks, and their
need for recapitalization. The Greek banks have been recapitalized twice, and
are considered secured, however, their targets as set in their budgets, are out
of range.
For example, the attraction of
new savings, reduce operating costs, reduce NPL’s by 10% per year, reduce cost
of borrowing, and their independence from the Emergency Liquidity Assistance
(ELA). It is an additional financial assistance received by credit institutions
that are facing temporary liquidity problems.
Bill T. Alexandratos, MSc, BA
Finance
