Twists and turns
Greece’s reform of its hard-hit financial sector is taking a hazy turn. On the eve of a big recapitalisation of Piraeus Bank, the head of its largest shareholder, the Hellenic Financial Stability Fund, abruptly quit. While running the fund, which has stakes in Greece’s four large banks, Austrian Martin Czurda championed better corporate governance. His departure takes a shine off expected improvements to Greek banking, including a bad debt cleanup plan and new insolvency code.
Czurda’s exit comes at an inopportune time. Piraeus – arguably the problem child of Greece’s banking sector – is prepping a capital increase that could amount to 1 billion euros, more than its current market capitalisation of about 700 million euros. Its biggest investor is the bailout fund, established during the euro zone crisis to prop up local lenders. The fund’s stake in Piraeus shot up to 61% from 26% after it missed a December coupon payment on 2 billion euros of contingent convertible bonds, triggering a share conversion.
If public investors enthusiastically back the capital increase, the fund could pare its stake to below 30%, an option liked by the government of Prime Minister Kyriakos Mitsotakis, who favours a swift privatisation of Greek banks. With more capital, Piraeus could also accelerate a cleanup of its balance sheet, which was still saddled with nearly 23 billion euros of dodgy loans at end September.
Many of the banking changes that Greece is pushing through are welcome. The country is implementing a bad debt cleanup programme, known as Hercules, which is modelled around a successful Italian system of state guarantees. Athens is also overhauling its inefficient and complex insolvency laws to give investors more certainty about the timing and processes in cases of bankruptcy.
Yet, investors may question whether Czurda’s exit may herald a backsliding of good corporate governance practice. Under his tenure, the bailout fund fought against cozy boardrooms. In 2018, for instance, it intervened to prevent a member of Alpha Bank’s founding family from becoming CEO. It also pushed for more independent and female directors at National Bank of Greece.
Without more clarity investors may believe Greece is moving two steps forward and one step backwards.