Greek bank wars leave $187 billion with uncertain management

Bloomberg

As Greek banks struggle to clean up their balance sheets of bad loans, investors have been left pondering another uncertainty: Who will lead the country’s biggest lenders?
The General Council of Greece’s bank recapitalization fund, HFSF, discusses whether to call an extraordinary meeting of National Bank of Greece shareholders aimed at forcing the lender’s chief executive officer, Leonidas Fragkiadakis, and other board members to resign, two people familiar with the matter said on condition of anonymity. Last week, the board of directors of NBG rejected an HFSF request to appoint Dimitris Tsitsiragos as its non-executive chairman, electing instead octogenarian Panayiotis Thomopoulos against the wishes of its biggest shareholder.
State-owned HFSF, which holds a 40.4 percent stake in NBG, used its power to delay the board’s reconstitution to decide its response, the people said, asking not to be named, as they weren’t authorized to publicly comment on the matter. A compromise solution could see Tsitsiragos serving as deputy to Thomopoulos under a clear succession plan,
another official said.
The Bank of Greece opposes the option of an extraordinary meeting of shareholders to topple either Thomopoulos or Fragkiadakis, as it would perpetuate the state of uncertainty in the country’s financial system, a central bank official said. Overruling board decisions would also go against the principles of good corporate governance, the official said, asking not to be named, in line with policy.
Forcing Fragkiadakis to resign “will not only prolong uncertainty, but also escalate it to a wholly different level,” analysts at Athens-based Pantelakis Securities wrote in a note to clients on Monday.
The quarrel about the appointment of a non-executive chairman at NBG is the latest in a series of clashes over the functioning of the Greek banking system between the government, the central bank, Greece’s creditors, shareholders and managers trying to hold on to their jobs. With more than 40 percent of business loans outstanding having gone bad, at stake are thousands of corporate restructurings that will shape the future of the country’s economy.
, following three rounds of capital injections to Greek lenders that were backed with about 45 billion euros ($50 billion) of taxpayers’ money.
Discord between stakeholders has also left Piraeus Bank, Greece’s biggest lender, under interim management since January. Paulson & Co.-backed CEO Anthimos Thomopoulos was forced to step down amid disagreements with chairman Michael Sallas, who has also since resigned. Officials representing regulators said Paulson, the biggest private shareholder in the bank, and board officials tied to Sallas have been blocking or undermining nominees backed by the other side.
The balance of votes in the board has gradually shifted against Sallas over the past few months, while supervisors will allow time to newly-appointed chairman George Handjinicolaou to seek a compromise, the people said. Failure to reach an agreement would force the Frankfurt-based Single Supervisory Mechanism and the Bank of Greece to appoint an administrator.
The management debacle in Piraeus and NBG complicates the efforts of Greece’s two biggest banks with combined assets totaling 162.8 billion euros ($187 billion), to meet quarterly targets set by the Bank of Greece for the reduction in their non-performing loans ratio. If banks fall short of the targets, they risk regulatory fines, and that would hinder their potential of extending credit to Greece’s depressed economy.
Further complicating things, the HFSF has its own leadership issue, as its newly appointed CEO, Vasilis Katsikiotis, said in an interview with the euro2day.gr website on Saturday that he hasn’t received his contract. Katsikiotis also said that he’s not willing to relocate to Athens from New York for a nine-month term, as it was announced by a Finance Ministry decree.
Spokesmen for the National Bank of Greece, Piraeus Bank, HFSF, the Bank of Greece and the European Central Bank declined to comment. And NBG’s chief executive officer didn’t respond to a request for comment.