Monday, July 23, 2012

EU says mismanaged Greek banks face 'revamp'

Banks recapitalised as part of Greece's bailout may be forced to overhaul their management and governance, the European Commission said, in response to questions raised by Reuters agency about alleged malpractice at Greece's fourth-largest bank.

In a statement, the European Union's executive arm said Greek banks would face due-diligence audits and possible management shake-ups in return for their share of billions of euros from the region's taxpayers and the International Monetary Fund.

"The recapitalisation process will entail a significant revamp of corporate governance structures and management practices in banks where malpractice has occurred," said Antoine Colombani, the Commission's spokesman on competition and antitrust issues.

The Commission was responding to a Reuters article of July 16 which reported that the chairman of Piraeus Bank, Michael Sallas, and his children had taken out loans of more than 100 million euros to secretly buy shares representing an undeclared family stake in the bank of more than 6 percent.

The purchases, conducted as part of an 800-million-euro Piraeus rights issue in January 2011 designed to strengthen the bank's capital base, were made via offshore companies owned by Sallas and his two children, according to audit documents seen by Reuters. The transactions were not declared to the Athens Stock Exchange by the bank.

The evidence of secretive self-purchasing of bank stock with borrowed money has raised questions about corporate oversight, especially at a time when European taxpayers and the International Monetary Fund have committed 48 billion euros to bailing out Greece's banks, including Piraeus.

In a series of articles about alleged mismanagement at three Greek banks, Reuters also reported in April that Piraeus had not disclosed it had rented properties from private companies run by the Sallas family. The bank has sued Reuters for defamation over the story, claiming 50 million euros in damages.

Sallas, who stepped down as executive chairman of Piraeus last month but remains its non-executive chairman, has declined to respond to questions from Reuters about the share loans.

In a written response to questions, the European Commission, the EU's executive and a party to Greece's 130-billion-euro ($156 billion) bailout, said it was following the issue in conjunction with Greek authorities.

"We understand that the national authorities are enquiring into the transaction to verify whether any regulatory provisions have been breached," said Colombani.

"In the meantime, we are aware that Mr Sallas is not in the executive board of the bank anymore."

The competition authority is one of several Commission departments involved in monitoring Greece's bailout obligations, including whether EU rules on state aid are being met. Under those rules, EU regulators can force an institution such as a bank to make management changes or even be wound up.

Colombani said the recapitalisation of Greek banks, which involves funds from the euro zone's bailout fund being transferred to a Greek-administered facility called the Hellenic Financial Stability Fund, would be tightly monitored, a process that could include demands for management changes.

"The Hellenic Financial Stability Fund is already conducting due diligence in the banks to be recapitalised by the programme funds," he added, referring to the funds being transferred from the euro zone's EFSF facility.

Colombani declined to say which banks could face action. The top four banks in Greece - National Bank of Greece, Eurobank, Alpha Bank and Piraeus - offered no immediate comment on the Commission's statement. "The bank could not be affected because it has nothing to do with such issues," said a Eurobank official who declined to be named.