Thursday, May 22, 2014

The Piraeus-Marfin Deal --- Follow-up (2)

The reader Dean Plassaras took violent opposition to the content of my previous article which was also published in the blog of Prof. Yanis Varoufakis. In a nutshell, Plassaras claimed that my conspirational mind was getting ridiculous. Below is my response to Plassaras.

"You make a powerful case, Dean. I can literally see Mssrs. Sallas and Vgenopoulos calling in their best PR-people prior to the accouncement of the deal and telling them the following:

'The deal which we are going to announce could trigger a lot of flak and your job is to take the wind out of any potential sails. Put together a story and place it with all the right people. Have your story focus on our role as responsible industrialists/bankers who follow the government’s call to make the Greek economy more efficient. Make sure to refer to the recent plea by the governor of Greece’s Central Bank for company mergers and the formation of healthy businesses that would help the economy along the recovery route and banks deal with mounting bad debt. Portray Piraeus as either a stakeholder or the main creditor of dozens of enterprises in various economic sectors that have run into problems due to the financial crisis. Portray Piraeus as the Atlas who has assumed the responsibility of carrying the suffering Greek economy on its shoulders. Portray both of us (Sallas/ Vgenopoulos) as responsible leaders who will do everything that we possibly can to improve the Greek economy'.

Dean, have you noticed that the 3 sources which you refer to (;; all use more or less the same language? Seems to me that they are quoting from someone else’s paper instead of applying their own research.

If I had doubts before, the Reuters article which Yanis linked confirmed those doubts about the virtuousness and integrity of Mssrs. Sallas/Vgenopoulos. Considering the bank equity tricks they applied back in 2011, they might be called crooks in many other countries (a former top Austrian banker just went to jail for having applied similar bank equity tricks). Piraeus has sued Reuters for defamation over the story, claiming 50 MEUR in damages. That will be an interesting law suit to watch!

I am all in favor of marshalling the best industrial and financial talents of Greece to turn the Greek economy around. Sallas/Vgenopoulos do not come close to fitting that mold, in my opinion.

I have yet to see a reaction to the deal from those investors who recently purchased a 500 MEUR Piraeus bond. Were they informed beforehand what their money was going to be used for? If they had been told that half the money would go to purchase convertibles of a publicly traded company, would they not have said 'if we wanted to do that, we wouldn’t need you; we could buy those bonds directly'?

'ANEK, the Henry Dunant Hospital and other companies could join up with their MIG counterparts, thereby creating stronger and more competitive corporations' — and exactly why would that be so? Simply because MIG is the new owner? Both parts are losing money; they don’t automatically get better by putting them together.

If part of the 250 MEUR convertible is used to finance the acquisition of ANEK, the Henry Dunant Hospital and other companies, money moves from the buyer to the sellers. Money which is then no longer available to finance that which those companies might need to get into better shape. My guess is that the 250 MEUR will be used (other than to finance losses) for group-building and not for strengthening the real economy. The real economy doesn’t automatically get stronger simply because some groups get larger.

The MIG Group is not large at all. Sales range in the 1,2 BEUR area. And yet, they are spread over a myriad of companies in a myriad of industries: 'food and dairy, coastal shipping, healthcare, IT … to name but a few'. I just don’t see how a group the size of MIG could financially support the management competencies required to manage such a diversified group. They will probably have to hire management consultants at every step of the way.

I take it from the PwC report that the Greek economy is full of zombies. One doesn’t solve the problem of zombies by putting them together. If they are zombies for financial reasons, they need to be put through something like the American Chapter 11 (companies coming out of Chapter 11 are clean as a whistle). If they are zombies for commercial reasons, synergies need to be found through increasing the economies of scale. They should be merged with one another under a new professional management. Simply integrating them into a group, particularly if that is a financially weak group, doesn’t do a thing. All it does is make the group larger and, therefore, more ‘too big to fail’ in the future. At the end of the day, the damage is paid for with other people’s money.

MIG, the holding company, has – like any other holding company – no revenues and/or cash flow on its own. In order to pay for its expenses (in 2013: 15 MEUR for operations; 25 MEUR for interest), it depends entirely on cash-flow upstreamed from its subsidiaries such as dividends. Without such upstreamed cash-flow, a holding company is dead in the water. Since almost all subsidiaries are losing money, there was no upstreamed cash-flow in 2013. Without the 250 MEUR convertible, MIG would be dead in the water. If you ever want to see a financial zombie, that’s one of them".


  1. Bank of Pireaus statement:

    Brief points.

    1. The essence of the deal is a "corporate restructuting", "debt to debt" and "debt to equity". So it is a classic form of loan demand restructuring from the Recovery Banking Unit sector of the bank.

    2. The Bank of Piraeus gets pays 165 meur for loans and titles of 325 meur.

    Sorry it's far too technical and long to translate in detail. But it is curious that only Prof. Varoufakis has seen this and none in the opposition, which would be a very good weapon in electoral times of need like this...

    Your greek source may or may not be trustworthy. Many want to climb higher the ladder when Provopoulos term ends...

  2. Klaus, looks fishy indeed. Wonder where the regulators are in all this. Will be interesting to see how the ecb will deal with that in its aqr exercise. Did an analysis of pireus fundamentals on my blog ( Would be glad to hear your opinion on that, givn your extensive banking experience.

    1. 1 of 2
      Very interesting, your analysis! The point which, to me, stands out is less an issue of Piraeus as a bank but rather a question about the environment in which Piraeus does business, how it does business and with whom it does it. They recorded about 3,8 BEUR in negative goodwill as income. If positive goodwill represents overpaying for assets relative to book value, negative goodwill is the opposite, i. e. underpaying for assets relative to book value. Now, if this 3,8 BEUR is really considered to be worth something, it would mean that someone else forfeited 3,8 BEUR in value by selling assets to Piraeus. Who in the world would forfeit 3,8 BEUR and why??? I have never seen a balance sheet, corporate or bank, with significant amounts of negative goodwill!

      As much as I commend your analysis, I do not believe that the financial statements alone of any large bank allow an outsider to make a definitive judgment. There are just too many things one can do – in compliance with all regulations – with numbers. This is even more applicable to the large Greek banks because I doubt that their numbers are all in compliance with regulations.

      Furthermore, the future of Greek banks will be – much more so than in other country – a function of the development of the Greek economy. If the Greek economy were to take off, the banks would obviously do very well for investors. If the Greek economy continues to struggle for survival for a number of years, no Greek bank will be able to escape that.

      Furthermore, and even today, all Greek banks would be dead in the water without ECB support. During the crisis, the Greek banking system lost 80 BEUR+ of deposits (one-third of all deposits), which funding the ECB replaced. Against this background, I am appalled by the investor-friendly recaps which have been implemented; by the speculator-friendly deals that are being allowed to take place. My view is that the ESM, the ultimate provider of equity, should have wiped out all existing shareholders, put in place competent managements unrelated to the Greek cronies and put in place new supervisory boards of integer people (and also unrelated to Greek cronies).

    2. 2 of 2
      Piraeus is now being portrayed as assuming the role of something like a Greek Development Bank (read Dean Plassaras’ comments in Varoufakis’ blogpost). It will become the primary mover behind the effort to get corporate Greece into shape. I will collect all zombies and turn them into stars. Well, my banking experience of 40 years has told me that good bankers are rarely good industrial entrepreneurs and industrial entrepreneurs often don’t understand what makes a bank tick. In fact, I have gotten to know only one person in my entire career in 6 countries who was both – and excellent banker and an industrial strategist. Well, I am all excited to find out whether Mr. Sallas of Piraeus will be the second such person…

      Before I wrote the articles on Piraeus/MIG, I knew nothing about Andreas Vgenopoulos of MIG. I have now done quite a bit of research about the man. All I could say to Mr. Sallas is: tell me who your friends are and I tell you who you are.

      Vgenopoulos is about as far from an industrialist as one can get. He seems to be a brilliant deal maker with particular skills when it comes to shady deals. Some of his deals have a strong criminal character. He uses primarily other people’s money (OPM) for his deals and uses sometimes questionable, if not illegal, ways to raise it (I understand that he himself owns only about 1% of MIG). He generates his wealth not through earnings out of his deals but from ‘collateral windfalls’ surrounding his deals. Before the crisis, he raised OPM in record sums and invested it in the go-go economy. Anybody can post great returns in that kind of an environment. When the crisis hit, the value of his fund collapsed to 5% of the previous level. I am not aware of any industrial achievement he has made. If Olympic Airways serves as an example, Vgenopoulos is an industrial zero.

      Given Vgenopoulos’ background; the malpractices he is being accused of; the alleged illegalities he is being sued for --- I fail to understand how ‘official Greece’ (be that the government, the head of the Bank of Greece or the CEO of one of the largest banks) could work with Vgenopoulos as a primary business partner. Vgenopoulos must have some very strong ‘cards’ against official Greece to get away with all of that.

      What I really would like to know (perhaps you can help) is how the purchasers of the recent 500 MEUR bond of Piraeus reacted to the MIG-accouncement. From what I gather, both Mssrs. Sallas and Vgenopoulos, are extremely impressive personalities who pull off outstanding presentations, shows, interviews, etc. As a banker, I have quite often fallen for such charismatic personalities. However, back in the office the charisma has evaporated and the hard facts remain. The charisma of Mssrs. Sallas and Vgenopoulos may be sensational; the hard facts of Mr. Vgenopolous are terrible and those of Mr. Sallas remain to be found out.

  3. My experiences with Dean Plassaras on other Greek blogs led me to the firm conviction that Dean does live not in the USA but on a far away planet ;)


  4. Klaus, just responded to your goodwill comment on my blog, so I will focus on the othwr issues here: agree with u that it is difficult to say anything confidentially about the health of any bank as an outsider. But already looking at their audited bs raises serious concerns (eg 1/3 of their loan book is overdue but not impaired, presumably because their collateral is money good). Adding your worries about negative goodwill and marfin only raises the worries. Watch the ecb and its currently on-going aqr execise, according to the manual they are supposedmto deal harshly with these issues. Also notice that it seems only few people are as worried as you and me. The market values this thing at 1.2x book!!! And many respected investors are on this ( einhorn, paulson, klarman) either we are missing something here or...viennacapitalist