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Greek tragedy for Czech PPF Group: Piraeus Bank investment almost wiped out

Evropa

  13:05

Czech private investment fund PPF Group sees the value of its shares in Greek bank plunge by around 80% since acquisition

Will nationalization be required to keep Piraeus Bank’s doors open, or will the private sector, including PPF Group, step forward with cash? foto: © REUTERSČeská pozice

When Czech investment firm PPF Group announced it had acquired a 5.7% stake in the Greek bank Piraeus back on April 29, the share price stood at €1.10. In the aftermath of Greek Prime Minister George Papandreou’s announcement Monday that the recently agreed EU economic plan must be put to a referendum, Piraeus shares tumbled from €0.21 to €0.165 within minutes of markets opening in Europe.

PPF Group, controlled by Czech billionaire Petr Kellner, is keeping tight lipped about what it plans to do with its failing Greek asset, but it’s very possible the firm hasn’t yet decided: the two basic options pose a dilemma.    

According to its 2010 annual accounts, Dutch-registered PPF Group began acquiring Piraeus stock in late 2010, with a total investment of €1 million being made by the end of the year. By April 2011, however, it had increased its stake to 5.7% at a total cost of €92 million.

Merrill Lynch on Monday released a report on Greek banks with a reduced price-target for Piraeus at €0.1; at the end of trading on the Athens stock exchange on Tuesday, Piraeus stood at €0.199. Thus the bank’s market capitalization now stands at €227.5 million, with PPF’s stake worth around €12.96 million, or 14% of the money invested.

‘What I can say, though, is that the PPF Group will most likely remain present on the Greek market.’

The Greek news server grreporter.info said in a recent article that Piraeus will need around €1.9 billion to recapitalize following the planned write-off of 50% of Greek government bonds. PPF Group would not say if it would PPF participate in the recapitalization process.

PPF spokesman Milan Tománek told Czech position on Tuesday that PPF’s shareholders — i.e. Kellner with 94.25% and Jiří Šmejc with 5% — had decided not to communicate their response to the latest developments in the Greek banking sector and the EU’s provisionally agreed measures, which may be put to a referendum. “What I can say, though, is that the PPF Group will most likely remain present on the Greek market,” he said.

The factors to decide Greek banks’ fate

“Piraeus Bank is no more exposed than others [to the debt crisis],” Andreas Koutras, a specialist on the Greek banking sector with London-based financial markets news and advisory firm InTouch Capital Markets, told Czech Position, while describing its structure and management as “comparatively solid.”

According to Koutras, there are a number of factors that will decide if Piraeus Bank and indeed the other Greek banks will rebound:

  • organization and extent of private sector involvement [PSI] in the recapitalization of the banks following the write-off (“haircut”) of 50% of Greece’s government bonds;
  • the level, nature and structure of the individual banks’ debt exposure, which US asset management and advisory firm BlackRock and the Bank of Greece have been charged with ascertaining and analyzing;
  • and ultimately whether they avoid nationalization.

In Koutras’ view, Greece’s private financial institutions are in effect being punished by the EU for the economic mismanagement of the country’s government over many years. “Don’t forget that the pension funds were obliged by law to purchase [Greek government] bonds,” he points out, adding that, like in many countries, Greek banks were expected to buy national bonds. But unlike Ireland’s banks, he says, the Greek ones did not over lend. “Piraeus Bank is not overly exposed [to debt],” Koutras added.

Preferential shares v. nationalization

Analysts agree that key to the success of the PSI is whether the banks will be allowed to issue preferential shares, as opposed to ordinary, to raise capital in the private sectorKoutras and other analysts agree that key to the success of the PSI is whether the banks will be allowed to issue preferential shares, as opposed to ordinary shares, to raise capital in the private sector. He estimates the Greek banks together need to raise around €20 billion to avoid a bailout by the Greek government or the EU’s European Financial Stability Facility (EFSF), which would amount to nationalization.

Kellner’s PPF is now faced with a dilemma of not putting up capital and seeing its stake in Piraeus considerably reduced by an inevitable share float, or pumping money into the bank and thus increasing its stake with the potential for considerable gains – or considerably larger losses than those incurred to date.

It was reportedly Jiří Šmejc who led PPF into the Greek banking sector. “With Piraeus Bank we’re betting that it will hold firm, that there won’t be any fundamental restructuring of Greek state bonds, that the euro will survive in Greece and that Greece will survive with the euro,” he told the daily Hospodářské noviny in June.

At the same time, he said PPF would be looking for privatization opportunities in Greece that would not be adversely affected by as restructuring of Greek bonds, or even an exit from the eurozone, “which I personally do not believe will happen,” Šmejc said.

Whether PPF’s venture into the Greek banking sector was an act of reckless optimism, or whether in a few years down the line — despite Šmejc’s erroneous conviction in June that the worst was probably over for Athens — Kellner’s empire will be lauded for genius foresight remains to be seen. Opting not to participate in the recapitalization of Piraeus would amount to an admission of a very bad investment.

Koutras predicts that if the Greek banks avoid nationalization, those who put money into the recapitalization of the banks will look back in two or three years’ time and see they made a very good investment.

Greece’s Enron?

However, despite Koutras’ assessment that Piraeus Bank is relatively solid in terms of structure and management, the inspection of the bank’s debt exposure and structure by BlackRock and Greece’s central bank may expose serious irregularities at Piraeus and other banks.

In an article headlined “Is Piraeus Bank Greece’s Enron? BlackRock must find out” published by wikigreeks.org on Tuesday, an anonymous source in the Greek banking sector says that over €247 million was transferred from Piraeus in 2008 to offshore accounts of companies that the server says were special purpose vehicles (SPV) – fronts established solely to participate in and conceal questionable or illegal financial transactions. The end beneficiaries were reportedly a group of individuals who have simply kept the money.

If true, that would not only cast doubt upon PPF Group’s due diligence prior to buying into Piraeus Bank, it could dissuade potential private-sector investors from boosting the bank’s capital – that is if the green light for an issue of preferential shares is given not only by the Greek central bank, but also by the European Central Bank (ECB).

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