Wednesday, June 8, 2016

Fire One-Third Of Greece's Bank Directors?

I reproduce below an interesting article from the WSJ explaining details about the upcoming shake-up of the boards of the 4 large Greek banks. There is a likelihood that whatever action is taken by the ECB, the Greek government - and particularly SYRIZA - will interprete that vocally as a concerted action directed against the Greek government, particularly against SYRIZA. This would be an incorrect conclusion.

Bank executives in all European countries, as far as I know, need to be approved for "fitness" by Central Banks. For the roughly 130 systemic banks which are being supervised by the ECB, it is the ECB which does the approving. For all other banks it is the national Central Banks.

These approvals cannot be taken lightly. For example, when Anshu Jain became CEO of Deutsche Bank (meanwhile replaced), there were stories that the Bundesbank would not approve his "fitness" because of lack of fluency in German (such fluency is required so that bank executives can read and understand banking directives issued in German). Jain, the stories continued, had to commit to take regular German lessons.

The more normal procedure is to disqualify a person from "fitness" before his/her first appointment. To disqualify a person who has been approved before is rather unusual and would normally require a "cause".

Wall Street Journal
June 8, 2016 5:30 a.m. ET
ATHENS—European authorities are seeking to replace a third of the board members at Greece’s major banks, among the toughest actions by regulators since the financial crisis. And Louka Katseli is a major target.

The former socialist parliamentarian was named chairwoman of National Bank of Greece SA last year, one of several politicized appointments that European regulators say saps investors’ confidence in Greek banks and makes it harder to clean up a mountain of bad loans.

Under pressure from international creditors, the Greek Parliament established rules for who can and who can’t serve on bank boards, effectively banishing local business magnates and former politicians. The rules are extensive and complex. Directors must have worked in banking for at least a decade, for instance. But directors who head committees that control decisions about risk and personnel can’t have worked in Greece’s financial sector in the past 10 years.

The result is a small pool of eligible directors and a large pool of frustrated elites. This month, amid fierce lobbying, Greek banks will receive a report outlining which board members need to be axed. In Athens, bankers dub it the “Get Katseli Law.”

Greece agreed to the Draconian rules as part of an €86 billion ($97.68 billion) bailout a year ago, which included several billion euros to prop up its lenders. It is the third recapitalization of the banking system, and Europe is pushing for deep changes in how it is run. Last week, Greece and its creditors reached an initial deal to release a roughly €10 billion tranche of the funds.

Ms. Katseli and others are trying to convince Greek and European authorities that the country is being singled out for boardroom practices that are common all over Europe.

When Daniele Nouy, the top banking regulator at the European Central Bank, visited Athens early this year for a round table with top Greek bankers at the neoclassical headquarters of Greece’s central bank, Ms. Katseli attacked the new rules, according to a person familiar with the meeting. Ms. Nouy replied: “The law is the law."

Greece’s  banks are in this position because they hold €100 billion in bad debts, an extraordinary amount for a country with a gross domestic product of about €180 billion. Eurozone banking regulators argue the boards must be gutted if the banks are to attract the foreign capital needed to clean up their balance sheets. That cleanup, in turn, is vital if Greece’s deeply depressed economy is ever to bounce back.

The concerns stem from the unusually deep ties between Greek banks and Greek politics. The government, for instance, has traditionally named the head of National Bank of Greece, the country’s second-largest lender. Greek banks, meanwhile, have lent generously to the country’s traditionally dominant parties, the conservative New Democracy party and socialist Pasok. The parties used the funds to campaign, including busing in supporters from around Greece to swell rallies and flying them in from abroad to vote..

The parties still owe the banks some €300 million, which party insiders acknowledge they can’t repay in full now that they have been abandoned by many voters thanks to their role in Greece’s economic crisis. Among NBG’s political customers, only the Greek Communist Party and the ruling leftwing Syriza are paying the interest on their loans, according to one bank official.

Greek lawmakers have launched an inquiry into whether banks previously dished out about €800 million in loans to financially shaky media groups following pressure from politicians seeking positive media coverage of their parties. The banks and parties concerned all deny wrongdoing.

Under the new rules, passed in October, people who have been senior politicians during the past four years are entirely barred from serving on boards.

One such person is Ms. Katseli, a 64-year-old economist who had sat in Greece’s Parliament since 2007 and who publicly backed the ruling left-wing Syriza party in recent elections. In early 2015, after winning power, Syriza made her NBG’s nonexecutive chairwoman.

The ECB’s banking-supervision department, called the Single Supervisory Mechanism, signed off on Ms. Katseli’s appointment at the time. Now, it wants her out. Earlier this year, the regulatory agency wrote the bank asking pointedly about its succession plans.

Ms. Katseli is clinging on. Early this year, she flew to Frankfurt to complain to Ms. Nouy. Having been a politician doesn’t prevent someone from being a good banker, Ms. Katseli argued, said a person familiar with the matter.

She isn’t the only director under pressure. The country’s bank-bailout fund has hired U.S.-based executive recruiters Spencer Stuart to evaluate boardroom personnel. Its headhunters flew to Athens in May to begin evaluating Ms. Katseli and other directors at the four biggest Greek banks. The directors are being put through grueling interviews sometimes lasting several hours.

Spencer Stuart’s report, due in mid-June, is expected to recommend replacement of about a third of the 55 nonexecutive directors at Greece’s major banks, said a person involved in the project.

The board of Piraeus Bank SA, Greece’s largest lender, includes a shipping magnate and an airline executive who don’t meet the new criteria. Nearly half of the board will probably have to be replaced, said a person close to the bank. Piraeus Chairman Michalis Sallas, who has headed the bank since 1991, is likely to survive the purge, people familiar with the matter said.

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