A Greek Tycoon Fights Claims He Made Cypriot Bank Depositors’ Money Turn “Into Thin Air” “A Poor Man with Money”

GREEK BANKS PRESSURE: Marfin Investment Group chairman Andreas Vgenopoulos, pictured here in 2009, quit Marfin Popular Bank in Cyprus last November and rejects allegations of wrongdoing. REUTERS/ICON A Greek tycoon fights claims he made Cypriot bank depositors’ money turn “into thin air” “A poor man with money” BY STEPHEN GREY, MICHELE KAMBAS AND Nikolas LeoNtopoUlos ATHENS/NICOSIA, JUNE 12, 2012 ike many Greek tycoons these days, Andreas In 2010, Marfin Investment Group (MIG), the firm Vgenopoulos is in trouble. Vgenopoulos managed which has stakes in everything L The self-made businessman built one of from privatised national carrier Olympic Air to food Greece’s leading corporate empires over the past two giant Vivartia, lost 1.8 billion euros ($2.2 billion). The decades. Among its jewels was a major bank in the loss, largely made up of write-downs on goodwill, was nearby Mediterranean island nation of Cyprus. Then the biggest ever for a Greek company to that point. it all started to unravel. There is a joke in Athens that MIG’s initials stand for SPECIAL REPORT 1 GREEK baNKS ”A poor MAN WITH MONEY” “Money Is Gone.” in the euro zone, to seek its own bailout. Meantime the Marfin Popular Bank was The money needed represents a tenth of the a major lender to an order of Greek monks country’s GDP. who received swathes of prime state-owned An independent MP, Zacharias Koulias, land in sweetheart deals, and who in turn told the Cypriot parliament ahead of the bought shares in MIG. A Greek parlia- parliamentary vote that in his years in par- mentary inquiry alleged serious “conflicts of liament, “it’s the first time we are in such a interest” in how bank loans were issued to difficult position.” Like many other Cypriot finance MIG’s wider activities. politicians, he blames Vgenopoulos. Vgenopoulos denies any wrongdoing. “How could (Cypriot authorities) be But his travails shed light on a factor largely fooled by a man who took the capital of Cy- overlooked in the narrative of the Greek priot depositors to Greece and turned it into economic crisis, which is now threatening REGULATOR: Athanasios Orphanides, former thin air?” Koulias said. “Is it even possible for to force Athens out of the euro zone and Governor of the Bank of Cyprus. Vgenopoulos says a man to come to our country, grab the capi- unravel the currency along with it: the debts Cypriot regulators conducted a smear campaign tal and leave, and all these managers didn’t many Greek banks built up by lending to against him. REUTERS/ANDREAS MANOLIS realize what was going on?” each other and to associates. Vgenopoulos rejects any suggestion of As Greeks head back to the polls in an elec- blame. Interviewed in his wood-panelled tion that may help to decide whether they stay Less attention has been paid to the nation’s MIG boardroom in Athens, dressed in jeans in Europe’s common currency, and as Cypriot banks, which are due to be bailed out with 30 and polo shirt, he said Cypriot regulators politicians move closer to asking for an inter- billion to 50 billion euros in guarantees from had conducted a smear campaign against national bailout - perhaps as early as this week European taxpayers. A look at Marfin, along him. His exit as non-executive chairman of - the story of Vgenopoulos and Marfin helps with previous Reuters examinations of Greek Marfin – Vgenopoulos said he jumped rath- explain how Greece and Cyprus got here. lenders Proton and Piraeus, suggests that er than was pushed - was part of a “coup” or- Last November, regulators in Cyprus the nation’s financial woes were exacerbated ganised by the then-governor of the central pressured Vgenopoulos to give up his chair- by conflicts of interest at some banks and by bank of Cyprus, Athanasios Orphanides. manship of Marfin bank. Now renamed Cy- light regulatory supervision of them. “The biggest mistake of my career,” he prus Popular Bank, it was placed under state Manolis Bedeniotis, a just-retired MP said, was to keep his bank in Cyprus, where management in May. The bank’s new execu- with PASOK, the Greek socialist party, said it now “they are throwing allegations against tives have uncovered what they suggest is was clear there was a “lack of substantial regu- me, they are discovering old things ... I end- evidence of huge exposure at its Greek busi- latory control on the banking system”. Loans ed up in a trap.” nesses to risky investments, including loans were often issued based on “a network of Orphanides declined to comment for issued to investors who bought shares in the personal relationships,” starving those in the this story. MIG conglomerate. They allege this has left real economy – small and medium businesses The former Marfin bank’s biggest immedi- the bank too vulnerable to MIG’s fate. and farmers – of access to finance. “This is the ate problems stem from having to write down “I think clearly there were many decisions evolution of a system that was functioning the value of its investment in Greek govern- which were in retrospect unwise,” said Michael according to its connections with the politi- ment debt to 720 million euros from 3.05 bil- Sarris, a former Cypriot finance minister who cal and the economic power, and in the end lion. Such haircuts have been forced on banks has taken over as chairman of the seized bank. reached a point of even being above it.” holding Greek sovereign paper across Europe, Senior bank officials say the central bank of The scale of Marfin’s problems poses dif- as part of the latest bailout of Athens. Cyprus is preparing to order an inquiry into ficulties for the Cyprus government. In a “There was too much lending, too much what may have gone wrong at Marfin – and parliamentary session on May 17, they voted concentration of risk in one instrument,” into shortcomings by Cypriot regulators. to help the bank fill a capital shortfall esti- said Sarris, the new non-executive chairman. Analyses of the Greek crisis have focused mated by the bank and the country’s finance “And that suggests that the mechanisms of on the most glaring cause of the country’s ministry at nearly 2 billion euros. Lawmak- the bank did not work properly.” woes: the hundreds of billions of dollars in ers in Cyprus fear that if no new private in- But the bank’s other lending in Greece debts racked up by Athens, which has so far vestors are found, the bank could even force may have added to the problems. Of its capital required two bailouts. the republic, one of the smallest economies shortfall, the bank estimates nearly one-third SPECIAL REPORT 2 GREEK baNKS ”A poor MAN WITH MONEY” arises from provisions for bad loans in Greece. poulos is a lawyer by training. He made his According to Sarris, the “single most impor- name at a shipping-law practice where he tant factor” dissuading investors from help- built a reputation as a persuasive salesman ing recapitalise the bank was now not sover- and dealmaker.“I am not rich,” he once told eign bonds, but concern that further losses in a reporter. “I consider myself to be a poor Greece could materialise. man with money.” “We now have a loan portfolio in Greece He has never shied from confrontation. He of about 12 billion and funding of 6 and 7 once caused outrage in the Greek parliament (billion euros),” he said. The gap has to be when he said that, while he was a servant of financed by Cypriot depositors. shareholders, “you, in your turn, are the ser- Sarris says Marfin undertook large-scale vants of the people, therefore my servants.” lending to finance the purchase of MIG He founded the Marfin group in 1998, fo- shares and other Greek stocks, and he wants cusing on investments in banking. In 2006, the an investigation of the deals. At issue is group moved its base to Cyprus with the cre- whether the bank executives acted improperly ation, after a merger, of Marfin Popular Bank. or just took too many risks, either by using the In 2007 Vgenopoulos split off all the non- loans to fund the shares of affiliated compa- banking businesses and grouped them togeth- IN THE RED: Cypriot politicians say Vgenopoulos nies or by failing to obtain sufficient collateral. er in MIG. He then organised a 5.1 billion- used Cypriot depositors’ capital in loans in “Purchases of shares were made with euro rights issue for the Athens-listed MIG, Greece. REUTERS/JOHN KOLESIDIS loans, which in and of itself is not a very diluting Marfin bank’s stake in the company good practice,” said Sarris. The risk was to 6.5 percent from 97 percent. As a result, compounded by the fact that the loans were MIG and Marfin became legally separate. Mount Athos, on a remote peninsula in the mainly secured with the very same shares. Vgenopoulos remained on the boards north of the country. This made the collateral shaky, because stock of both companies. At the Marfin bank Greek investigative journalist Kostas prices can drop. “It is even less wise when he was chief executive and then execu- Vaxevanis showed how the Vatopedi monks (the) companies that do that are related.” tive vice-chairman of the bank until 2010, had engaged political help to obtain the Senior bankers in Cyprus, Cypriot and when he became non-executive chairman. rights to a nature reserve in northern Greece Greek central bank auditors, and some At MIG, he was the most senior executive and then, with more help, to swap it for valu- Greek politicians argue that Marfin became until becoming non-executive chairman in able state-owned real estate across the coun- too close to MIG’s shareholders, creating January.

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