[MGSA-L] Special Report: How a Greek bank infected Cyprus

[June Samaras]

Special Report: How a Greek bank infected Cyprus

7:45 a.m. CDT, June 13, 2012

http://www.chicagotribune.com/news/sns-rt-us-greece-marfinbre85c0m9-20120613,0,3335375.story

By Stephen Grey, Michele Kambas and Nikolas Leontopoulos

ATHENS/NICOSSIA (Reuters) - Like many Greek tycoons these days,
Andreas Vgenopoulos is in trouble.

The self-made businessman built one of Greece's leading corporate
empires over the past two decades. Among its jewels was a major bank
in the nearby Mediterranean island nation of Cyprus. Then it all
started to unravel.

In 2010, Marfin Investment Group (MIG), the firm Vgenopoulos managed
which has stakes in everything from privatized national carrier
Olympic Air to food giant Vivartia, lost 1.8 billion euros ($2.2
billion). The loss, largely made up of write-downs on goodwill, was
the biggest ever for a Greek company to that point. There is a joke in
Athens that MIG's initials stand for "Money Is Gone."

Meantime the Marfin Popular Bank was a major lender to an order of
Greek monks who received swathes of prime state-owned land in
sweetheart deals, and who in turn bought shares in MIG. A Greek
parliamentary inquiry alleged serious "conflicts of interest" in how
bank loans were issued to finance MIG's wider activities.

Vgenopoulos denies any wrongdoing. But his travails shed light on a
factor largely overlooked in the narrative of the Greek economic
crisis, which is now threatening to force Athens out of the euro zone
and unravel the currency along with it: the debts many Greek banks
built up by lending to each other and to associates.

As Greeks head back to the polls in an election that may help to
decide whether they stay in Europe's common currency, and as Cypriot
politicians move closer to asking for an international bailout -
perhaps as early as this week - the story of Vgenopoulos and Marfin
helps explain how Greece and Cyprus got here.

Last November, regulators in Cyprus pressured Vgenopoulos to give up
his chairmanship of Marfin bank. Now renamed Cyprus Popular Bank, it
was placed under state management in May. The bank's new executives
have uncovered what they suggest is evidence of huge exposure at its
Greek businesses to risky investments, including loans issued to
investors who bought shares in the MIG conglomerate. They allege this
has left the bank too vulnerable to MIG's fate.

"I think clearly there were many decisions which were in retrospect
unwise," said Michael Sarris, a former Cypriot finance minister who
has taken over as chairman of the seized bank. Senior bank officials
say the central bank of Cyprus is preparing to order an inquiry into
what may have gone wrong at Marfin - and into shortcomings by Cypriot
regulators.

Analyses of the Greek crisis have focused on the most glaring cause of
the country's woes: the hundreds of billions of dollars in debts
racked up by Athens, which has so far required two bailouts.

Less attention has been paid to the nation's banks, which are due to
be bailed out with 30 billion to 50 billion euros in guarantees from
European taxpayers. A look at Marfin, along with previous Reuters
examinations of Greek lenders Proton and Piraeus, suggests that the
nation's financial woes were exacerbated by conflicts of interest at
some banks and by light regulatory supervision of them.

Manolis Bedeniotis, a just-retired MP with PASOK, the Greek socialist
party, said it was clear there was a "lack of substantial regulatory
control on the banking system". Loans were often issued based on "a
network of personal relationships," starving those in the real economy
- small and medium businesses and farmers - of access to finance.
"This is the evolution of a system that was functioning according to
its connections with the political and the economic power, and in the
end reached a point of even being above it."

The scale of Marfin's problems poses difficulties for the Cyprus
government. In a parliamentary session on May 17, they voted to help
the bank fill a capital shortfall estimated by the bank and the
country's finance ministry at nearly 2 billion euros. Lawmakers in
Cyprus fear that if no new private investors are found, the bank could
even force the republic, one of the smallest economies in the euro
zone, to seek its own bailout. The money needed represents a tenth of
the country's GDP.

An independent MP, Zacharias Koulias, told the Cypriot parliament
ahead of the parliamentary vote that in his years in parliament, "it's
the first time we are in such a difficult position." Like many other
Cypriot politicians, he blames Vgenopoulos.

"How could (Cypriot authorities) be fooled by a man who took the
capital of Cypriot depositors to Greece and turned it into thin air?"
Koulias said. "Is it even possible for a man to come to our country,
grab the capital and leave, and all these managers didn't realize what
was going on?"

Vgenopoulos rejects any suggestion of blame. Interviewed in his
wood-paneled MIG boardroom in Athens, dressed in jeans and polo shirt,
he said Cypriot regulators had conducted a smear campaign against him.
His exit as non-executive chairman of Marfin - Vgenopoulos said he
jumped rather than was pushed - was part of a "coup" organized by the
then-governor of the central bank of Cyprus, Athanasios Orphanides.

"The biggest mistake of my career," he said, was to keep his bank in
Cyprus, where now "they are throwing allegations against me, they are
discovering old things ... I ended up in a trap."

Orphanides declined to comment for this story.

The former Marfin bank's biggest immediate problems stem from having
to write down the value of its investment in Greek government debt to
720 million euros from 3.05 billion. Such haircuts have been forced on
banks holding Greek sovereign paper across Europe, as part of the
latest bailout of Athens.

Copyright © 2012, Reuters



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