Greek Bank Wars Leave $187b in Unsettled Assets

As Greek banks struggle to clean up their balance sheets of bad loans, investors have been left pondering another uncertainty: Who will lead the country’s biggest lenders?

The General Council of Greece’s bank recapitalization fund, HFSF, may convene Monday to discuss whether to call an extraordinary meeting of National Bank of Greece shareholders aimed at forcing the lender’s chief executive officer, Leonidas Fragkiadakis, and other board members to resign, two people familiar with the matter said on condition of anonymity, Bloomberg reported.

Last week, the board of directors of NBG rejected a HFSF request to appoint Dimitris Tsitsiragos as its non-executive chairman, electing instead octogenarian Panayiotis Thomopoulos against the wishes of its biggest shareholder.

State-owned HFSF, which holds a 40.4% stake in NBG, used its power to delay the board’s reconstitution to decide its response, the people said, asking not to be named, as they weren’t authorized to publicly comment on the matter. A compromise solution could see Tsitsiragos serving as deputy to Thomopoulos under a clear succession plan, another official said.

The Bank of Greece opposes the option of an extraordinary meeting of shareholders to topple either Thomopoulos or Fragkiadakis, as it would perpetuate the state of uncertainty in the country’s financial system, a central bank official said. Overruling board decisions would also go against the principles of good corporate governance, the official said, asking not to be named, in line with policy.

The quarrel about the appointment of a non-executive chairman at NBG is the latest in a series of clashes over the functioning of the Greek banking system between the government, the central bank, Greece’s creditors, shareholders and managers trying to hold on to their jobs. With more than 40% of business loans outstanding having gone bad, at stake are thousands of corporate restructurings that will shape the future of the country’s economy, following three rounds of capital injections to Greek lenders that were backed with about €45 billion ($50 billion) of taxpayers’ money.

 Management Debacle

Discord between stakeholders has also left Piraeus Bank, Greece’s biggest lender, under interim management since January. Paulson & Co.-backed CEO Anthimos Thomopoulos was forced to step down amid disagreements with chairman Michael Sallas, who has also since resigned. Officials representing regulators said Paulson, the biggest private shareholder in the bank, and board officials tied to Sallas have been blocking or undermining nominees backed by the other side.

The management debacle in Piraeus and NBG complicates the efforts of Greece’s two biggest banks with combined assets totaling €162.8 billion ($187 billion), to meet quarterly targets set by the Bank of Greece for the reduction in their non-performing loans ratio. If banks fall short of the targets, they risk regulatory fines, and that would hinder their potential of extending credit to Greece’s depressed economy.