Greek Banks

PRESSURE: Marfin Investment Group chairman Andreas Vgenopoulos, pictured here in 2009, quit Marfin Popular Bank in 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/, 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 ($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 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 . 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. He has only small personal stakes try. The monks were also major players on conflicts of interest and possible breaches of in the companies. the stock market and received 109 million banking rules. While share loans, or margin “The aim of the Marfin group is to be- euros in loans from Marfin bank. loans, are common practice in most Western come one of the biggest European busi- The Vatopedi scandal helped push the con- markets, if the value of the shares falls, lend- ness groups with a market capitalisation of servative New Democracy party from govern- ers typically require investors to put up more over 140 billion euros in the next five years,” ment in 2009 and exposed the extent of cor- collateral or sell the stock. Vgenopoulos said in 2007, referring to MIG. ruption in Greek politics. Largely lost in the Sarris said the bank may now sell the two Only a year later, some in Greece started furore, though, were the questions the Vatopedi Greek banks it owns. The extent of possible to question where the money to buy MIG scandal raised about the Greek banking system. conflicted lending still needed to be pinned shares had come from. A special inquiry on Vatopedi in 2010 down. “There is a lot of smoke, which means The trigger for those questions was a heard the monks spent 30 million euros there is some fire,” he said. “But how much of scandal over the Vatopedi Monastery on they borrowed from Marfin bank, the mon- it, and to what extent can it be justified, I am astery’s biggest lender, to buy shares in the not sure.” I think clearly there were MIG rights issue, plus another 42 million many decisions which were in euros in other investment schemes with MIG or its associates. “A POOR MAN WITH MONEY” retrospect unwise. Greek MPs went on to compel the Bank A former Greek fencing champion who Michael Sarris of Greece to provide details of all the loans competed in the 1972 Olympics, Vgeno- Chairman, former Marfin Popular Bank that Marfin Popular Bank’s two Greek sub-

SPECIAL REPORT 3 Greek banks ”A poor man with money”

tigation into allegedly illegal actions by Marfin and others. Tsironis also made wider allegations, arguing that Marfin-Egnatia had become a vehicle to pour nearly 2 billion euros into the hands of a small group of MIG investors. Marfin loaned money “to well-known ty- coons and businessmen” to buy shares in MIG. All the loans for shares were granted, said Tsironis, on “extraordinarily advantageous terms to the borrowers thanks to the close ties between MIG and Marfin.” And it cre- ated a special credit risk that should have been spelled out publicly. Marfin and MIG, he said, were effec- tively inseparable, not least because they had many common executives and many com- mon shareholders. “The lending nexus be- tween Marfin and MIG and the other relat- ed companies creates a huge co-dependence MONASTERY SCANDAL: Marfin Bank lent monks at Vatopedi monastery more than 100 million and risk concentration.” euros, some of which they used to buy shares in the MIG issue. REUTERS/Grigoris Siamidis Provopoulos, the Bank of Greece gover- nor, disagreed and said that because MIG and Marfin were separate companies, the sidiaries at the time, Marfin-Egnatia and the to the MIG group suggested “favourable loans to buy MIG shares were acceptable. Investment Bank of Greece, had made to in- treatment” while “the relationship between Provopoulos said Tsironis did not under- vestors to take part in the capital-raising. MPB group and MIG group creates the stand the data. MIG was “neither directly George Provopoulos, the Bank of impression that the close ties between the or indirectly” a parent of Marfin Egnatia Greece’s governor, revealed to MPs that two groups played a significant role in the or Marfin Popular Bank in Cyprus. MIG Marfin-Egnatia had in 2007 loaned more approval of those loans.” didn’t exercise a “dominant influence” on than 700 million euros to finance the pur- The Vatopedi inquiry report, finished in Marfin, he said, nor were MIG and Marfin chase of MIG shares in the rights issue, and October 2010, stated that Marfin was im- “subject to joint management.” the bank had been sanctioned for failing to properly channelling loans to the monastery In a statement to Reuters, the Bank of categorise them all as “margin loans” – loans into schemes that benefited MIG. There were Greece said it had provided MPs with “all to buy a security, usually shares. This allowed “serious conflicts of interest” for those who relevant information,” but that legally it had them to bypass more stringent controls. ran Vatopedi and its advisers but also for the an obligation of secrecy which means “we “Margin loans are legal, if conditions set administration of Marfin which had given are not allowed to provide you with any fur- by the law are respected,” Provopoulos told “huge amounts” of cash that benefited not only ther information on these questions.” MPs. “If the value of the collateral drops, the monastery but “simultaneously executive Vgenopoulos is dismissive of Tsironis. He then the bank is asked to increase its capital.” members of the administration of Marfin”. says the loans to MIG and its associates are The most critical evidence came from a It described a “heap of violations, perjury, secured and have generated huge income for joint inspection of Marfin-Egnatia by au- and possibly falsification of documents” by the bank. The risk from loans secured on MIG ditors of the Bank of Greece and Central those directly involved with Vatopedi, as well shares was also exaggerated: it was misleading Bank of Cyprus conducted in March 2009. as by Marfin’s two Greek subsidiaries. The “tol- to measure risk to the bank based on the mar- The report, seen by Reuters, said the bank erant” role of the Bank of Greece left members ket price of those shares, since the shares are had been undertaking risks “whose level and of the committee “particularly troubled.” “hugely discounted,” trading at a tenth of net nature provoke concerns to the supervisory In a letter to Greece’s supreme court, the asset value. The bank made big profits from its authorities regarding their correct and ad- chairman of the committee, Dimitris Tsironis of Greek portfolio during good times, he said, equate management”. Loans from Marfin the socialist party PASOK, asked for an inves- and should look to the long term.

SPECIAL REPORT 4 Greek banks ”A poor man with money”

Vgenopoulos accused the MPs on the The lending nexus … they were not designed to help MIG. The committee of cowardice because they never creates a huge co-dependence capital raising was so oversubscribed, all of summoned him to give evidence. He and his and risk concentration. the shares would have been sold even if no companies filed three lawsuits against Tsiro- loans were issued, he said. nis for defamation, of which one has been Dimitris Tsironis “These loans were given by the bank to dismissed and two are still to be judged. Politician, PASOK meet demands of clientele which could not Vgenopoulos says Marfin was cleared of be refused, from good customers, each one of wrongdoing by the Bank of Greece after the in 2007 to buy MIG shares may be much whom had a relationship to the bank, from 2009 audit and the MPs’ report, as well as greater than has been reported. A total of which the bank earned a lot of money, and by money laundering investigators and by more than 510 million euros has still not the bank could not say no.” the Capital Market Commission (CMC), been paid back. With MIG’s shares trad- There were no loans to shareholders, as which regulates the stock exchange. “Noth- ing at just 3 per cent of their 2007 level, the Tsironis alleged, because existing bank cus- ing has ever been substantiated,” he said. collateral for these loans is now valued at tomers only became MIG shareholders after Costas Botopoulos, chairman of the around 140 million euros. the bank loaned them money. CMC, said that the commission doesn’t Orphanides stood down in April after Vgenopoulos supplied a copy of a note he have oversight of the Vatopedi case and the government opted not to renew his five- sent on June 29, 2007, to remind bank staff hasn’t conducted an inquiry. year term. In his few public remarks on the that clients should not risk undue exposure Panayiotis Nikoloudis, the head of matter, he accused Cyprus’s ruling commu- and make investments with money they did Greece’s anti-money-laundering agency, nist government of siding with Vgenopoulos not have. He said the message was followed said there was no reason to investigate Mar- and opposing more stringent banking regu- up a week later by a letter to staff from the fin’s activities. “The Bank of Greece already lations. “It saddened me to be the recipient human resources manager. investigated this case and found everything of political interventions which in all cases “Also, no loans were given to my friends, was all right. I have seen no strong argument were to relax the supervisory framework or to my relatives, to me,” Vgenopoulos said. that should overturn its conclusions.” meet certain interests,” he told parliament. He thinks Cyprus should call in BlackRock, Two senior prosecutors in Athens, how- At a press conference in Cyprus on May the U. S.-based investment firm that audited ever, said judicial investigators still had an 4, Vgenopoulos, who said he was fighting for the loan books of major Greek banks, to open inquiry into the MPs’ discoveries. tougher rules, accused Orphanides of acting do the same there. Attempts to blacken his Over the past year, Cypriot regulators have improperly. name and the name of Marfin would only taken a closer look. According to senior bank- “It was the theatre of the absurd. Having damage Cyprus, he said. ing officials in Cyprus, central bank governor made life for the bank incredibly difficult, he Orphanides told his staff last autumn that started making extra-institutional and illegal Grey reported from Nicosia and Athens; Marfin Popular Bank’s purchase of too many interventions to shareholders,” Vgenopoulos Kambas from Nicosia; Leontopoulos from Greek bonds had resulted in a liquidity crisis. said. “The governor of a central bank was Athens; additional reporting by William Relations between Orphanides and calling shareholders! He was meeting share- Waterman in London. Edited by Simon Vgenopoulos deteriorated, and in Novem- holders by appointment in his office. He Robinson and Sara Ledwith ber Vgenopoulos quit as Marfin’s chairman, called Dubai” – the Dubai Financial Group, just as Orphanides was preparing to ask him which is Marfin’s biggest shareholder and to resign on the grounds that he was respon- MIG’s second-biggest shareholder. “They sible for the cash crunch. A month later, were quite shocked, and he was taking them FOR MORE INFORMATION chief executive Efthimios Bouloutas was to taverns in Cyprus.” Stephen Grey sacked on the instruction of Orphanides, A spokesman for the Dubai group de- [email protected] who has not publicly said why. Bouloutas, clined to comment. Simon Robinson, Enterprise Editor, who declined to comment, now runs MIG Vgenopoulos says he has nothing to hide Europe, Middle East and Africa in Athens. about the relationship between MIG and [email protected] The former Marfin’s new management Marfin. Asked about loans given to buy Michael Williams, Global Enterprise Editor believes the bank’s exposure to loans given shares in MIG’s capital-raising, he said that [email protected]

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