EUROBANK: Another scandal re-packaged as part of the Greek Success Story

eurobankEurobank is an apt example of Greek ingenuity. Its name is a coup in itself.[1] Beyond semantics, however, and coming to recent developments, Eurobank is a wonderful example of the Greek establishment’s ingenious efforts to defraud Greek and European taxpayers, and then to proclaim a glorious Greek Success Story, weeks before the European Parliament elections. (You have already seen, here, the other plank of this campaign, also known as the Greek primary ‘surplus’…)

Let us begin with a grim account [2] of the public contributions to keeping Eurobank’s doors open and their ATMs functioning, following the bank’s complete and utter insolvency. As its owners contributed not one euro to its salvation, and no other private investor dared participate in the bank’s recapitalisation, the insolvent Greek state entered the fray lavishing Eurobank with money that the Greek taxpayers borrowed from Europe’s original bailout fund, the European Financial Stability Facility (EFSF). In brief, 

  1. In 2013 alone the Greek state was the sole buyer of Eurobank’s emergency share issue. Through the Greek branch of the EFSF (the so-called Greek Financial Stability Fund), the state invested €5.8 billion, paying €1.54 per share, thus acquiring 95% of the bank’s equity.
  2. The state purchased another €1.25 billion worth of preferred shares.
  3. The state handed over Postbank to Eurobank after it had injected €4.06 billion into Postbank to cover its ‘funding gap’ and another €550 million of fresh capital to recapitalise it.
  4. To ‘assist’ Eurobank absorb a small, corrupt failed bank (Proton Bank), the state gifted Eurobank €760 million to cover Proton’s ‘funding gap’ and another €550 million as fresh capital for it.
  5. Another €760 million was gifted, again by the state, to Eurobank for the purpose of covering the funding gap of another small bank (Aspis) that Eurobank took over.

All in all, the bankrupt Greek state handed over to Eurobank the grand total of €13.3 billion, or 7.3% of GDP. A few months later, in the new share issue that took place a couple of weeks ago, the following transpired, with the approval of the government and the troika:

  1. The state was not allowed to participate (through the Greek Financial Stability Fund) in the new share issue.
  2. Private investors were allowed to purchase the new shares at an 80% discount from the price the state had paid for shares only a few months before – they paid a measly 31 cents per share whereas the state had forked out 154 cents per share.
  3. The price paid per share by the private investors (of 31 cents per share) was not only much lower than the price the state had paid a few months before, but also lower even than the share price quoted in the Athens Stock Exchange at the time of the share issue.
  4. To cover their metaphorical posterior, the government passed a piece of legislation through Parliament that, shamelessly, granted perpetual immunity from prosecution on this matter to the board of the Greek Financial Stability Fund – for having agreed, against its interests, not to participate in the new share issue.

As a result of the new share issue, private investors (including the usual hedge funds) paid €2.86 billion and acquired 65% of a bank toward which the Greek state had so recently contributed €13.3 billion. Given that the state’s stake in Eurobank has now been diluted to 35% of the stock, which has been devalued as a result of this fire sale, the state’s remaining equity has dropped to a mere €2 billion.

To recap, the state rescued Eurobank at a cost to the Greek and European taxpayer of at least €13.3 billion. A few months later it handed over the bank’s keys to a consortium made up of its existing owners and foreign (primarily hedge) funds, keeping equity of €2 billion.

Could the state have acted differently, without jeopardising the bank and without unloading more than €10 billion of extra debt on the hapless Greek taxpayer, who will now have no alternative (due to her/his insolvency) but to transfer some of these losses to other European taxpayers (through the inevitably debt restructure that is due very, very soon)?

One solution, that is even consistent with Greece’s bailout commitments, would be for the state to invest itself the €2.86 billion that came from the new (2014) share issue, taking it out of the residual bailout loans that the Greek state still has stashed in the GFSF. That way the state would have retained control of the bank and the taxpayer would benefit fully from any recovery in the medium term. Once the government had pumped €13.3 billion in Eurobank, and given the government’s own projection of an improvement in the share price of banks, paying another €2.86 billion to retain control and to recoup its huge investment would be a priority for a virtuous government that puts its citizens’ interests above those of the bankers.

It is interesting to take a look at the argument used by the government for not doing this and for, instead, taking such a deep haircut, and with such indecent haste, on its investment in Eurobank. Their argument was that, because Pireus and Alpha banks were returning to private ownership, “keeping Eurobank under public ownership for a little while longer would damage its reputation in the market place!” Can you imagine RBS being unloaded, by the British government, onto hedge funds, at a huge cost to the British taxpayer, so as to avoid the stigma of public ownership? Frankly, I cannot.

Another fascinating, in its audacity, argument in support of the Eurobank fire sale is that the state’s loss (of more than €10 billion) is of the same order as Eurobank’s loss in the 2012 PSI, from which the bank lost €9.4 billion. Clearly, the Greek government does not understand the concept of sunk costs and has no sense that its primary responsibility is toward its citizens – not to bankers (who, after all, had chosen to stock up in Greek government bonds prior to 2012).

On a final note, addressed to my Irish readers, you may be interested to note that the investors that have been handed the keys to Eurobank by Greece’s government include Fairfax, WLR (Wilbur Ross’ concern), Fidelity etc. In other words, the major shareholders in the Bank of Ireland, from which they made a neat return of 280%. In this sense, the Irish and Greek bailout success stories are beginning to join up…


[1] Having predicted before anyone else in Europe that Europe’s common currency would be called the ‘euro’, its cunning Greek ship-owning family registered their fledgling bank’s name before the European Union could block naming a private bank after the official currency.

[2] This article is based on research by Elias Karavolias.


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  • Yanis – Can you comment a bit more as to what exactly the Greek gov’ts motivation was here? From a political standpoint, I understand propping up a failed bank, presumably to prevent contagion in the banking sector. But why the rush to return Eurobank to private ownership – merely to proclaim that the state’s role had receded? Surely, this must have been done with the knowledge of the Troika?

    • Our politicians have a terribly cosy relationship with our bankers. The latter fund the former’s campaigns as well as the media that promote the said politicians as if there is no tomorrow – in exchange for these sweet deals.

  • Γειά σου Γιάννη!
    Διαβάζω πάντα με προσοχή τις σκέψεις σου και τα στοιχεία που παραθέτεις. Στο συγκεκριμένο τμήμα του άρθρου σου “To ‘assist’ Eurobank absorb a small, corrupt failed bank (Proton Bank), the state gifted Eurobank €760 billion to cover Proton’s ‘funding gap’ and another €550 million as fresh capital for it”, προφανώς εκ παραδρομής γράφτηκε 760 bllion αντί million…
    Συγχαρητήρια για την στάση σου και το θάρρος σου να λές τα πράγματα με το όνομά σου! Συνέχισε!

  • The taxpayers in Greece are paying for the bank bailouts to allow this to happen.

    • Yep. When Yanis and others talk about the ‘state’ or public – as in ‘state losses’, ‘state [public] ownership’ he means us, the taxpayers.

    • The latest, by the way, from the Finance Ministry (Stournaras) is a move to privatise the coastline of Greece. Public access to 100% of the coast is enshrined in the greek constitution, and I believe, in European law too. In Greece’s case, combined with strict planning laws, this has kept Greece uniquely beautiful in the Medierranean and is the source of our touristic attraction – ie no Benidorms here.

      More stupid, more criminal, Stournaras’ Finmin has already published its plans for the Attica coastline, in which EVERY beach is privatised, and only dangerous, rocky bits of coastline are left ‘free’. Since few greeks can afford to take holidays anymore, the one saving grace for the capital – where 40% of greeks live – was free access to its marvellous local beaches. Therefore, at least in summer, the possibility of insurrection is kept to a minimum.

  • Yanni, you do not offer any alternative explanation for the GG’s actions. Are there any rational, or at least believable, ones?

    And why did the troika (incl. the ECB) who presumably raise Hell and threaten Gods and Daemons if the GG so much as blinks at giving a break to its society and SMEs (loan haircuts to over-indebted, moratorium on foreclosure, extensions on taxes due, etc) not only refrain from any criticism or enquiry but actually (and hastily) approved and endorsed the deal?

    To offer a hint into my thinking, an elaboration of the above question: is this haste to pass all financial institutions (both small and large!) into private ownership, at great loss to the public (and ultimately, the European) purse, unrelated to the pledge of the current opposition to *AUDIT* and *MANAGE* all publicly owned banks upon coming to power?

    Any clues from “the horse’s mouth”? [apparently, you speak to lots more “horses” than we, your readers, do :-)]

    • The explanation is hiding in plain sight. It is so obvious that it is hard to see. Europe’s politicians are enjoying a terribly cosy relationship with national bankers. Bailouts had the sole purpose of shielding bankers from losses and, when losses were unavoidable, to find ways of compensating them. Regarding the troika, you are right: They kick and scream in order to cut the pension of the poorest older people but when it comes to bankers, billions are thrown away under the troika’s noses and the troika keeps silent. Why? Because, like in the US, Britain, Germany etc., the task of these organisations since 2008 was to shift the bankers’ gambling losses onto the weakest of taxpayers. In the Eurozone, given that our governments lack a Fed or a Bank of England to print the money to give to the bankers, a lot more pain was shifted to taxpayers than in the US or Britain. And the troika’s job is to supervise the administration of this pain. In my Global Minotaur I described the post-2008 regime we live under Bankruptocracy: rule by the bankrupt bankers. In the Greek context, Eurobank is a walk in the park when compared to what happened with Pireus:

  • Eurobank is a complete failure story and not even close to being anyone’s success.

    In essence the Greek state took over and nationalized its banking sector via the recapitalization. In the case of Eurobank the state came into 100% ownership because Troika disallowed the merger with National Bank of Greece on the grounds that they wanted smaller banks to control better vs. a larger bank for systemic reasons aka pure Troika BS.

    So with the blink of an eye the Greek state found itself as the owner of untold number of banking shares which then the state sought to unload into the private markets at a profit. The mechanism of transfer devised (via warrants) was a complete and utter failure because it gave investors 3 years to exchange their warrants for actual shares at a profit. And most investors decided to wait until 2017 to do so.

    Following such complete failure to unload its banking shares and in need of cash to cover fiscal holes for the period of 2015-2016, the state devised the latest mechanism of forced sales for a portion of its shares to raise quick cash. Said cash could be used as a cushion towards future Troika negotiations of covering such fiscal holes for 2015 and 2016( a point of continuous contention between Troika and Stournaras).

    Therefore what we are talking about here is a confluence of extreme bad execution/amateurism on the part of the state and its Troika advisors who in effect precipitated a fire sale in order to raise cash in a mode bordering panic. The official excuse used was that the credit markets were very favorable for Greek shares and now was the right time to do it.

    In reality this move resulted in a “give away” to the new investors, complete dilution for the old investors(in this case mostly the government) and a really bad job by the government for orchestrating a game of failure from the get go.

    I am not sure who claims victory for Eurobank but it’s a classic example of losing one’s shirt and the state getting peanuts for what they could have sold at least 10 times higher price if they knew how to do it right.

    Stournaras is rewarded for his part by taking the Troika side on this with the taking over for Provopoulos at the Bank of Greece (Greek Central Bank) as of this June 2014. So he will be the new Central Banker for Greece and he will see to it the the bad job is carried to a predictable bad finish.

    The Eurobank handling is a classic “not to do” example of how a state should seek profit from nationalizing its banks. So, I am not sure who is claiming Eurobank as a victory when in fact it’s a tragedy of loss for the economy, shareholders and most of all its owner which is none other than the Greek state itself.

  • As much as Gandhi’s non-violent revolution is appealing, I am afraid getting rid of the shameful criminals of our governance will not be able to be done in a civilised manner.

    The unimaginable audacity of the Eurobank issue as so nicely spelled out here by Yiannis clerlly indicates that we are in for a very tough and long fight ahead. We are dealing with common criminals and until this has clearly registered in our minds they will undoubtedly continue the rampage in even more ingenuous and innovative ways.

    Kudos to Yiannis for staying the course.

    • Kudos to Yianni.

      But he has a huge amount of material to draw from. Every move the Greek government makes is a product of collusion with specific interests and of hasted (and incompetent) decision making.

      Eurobank / Ethniki merger cancellation
      Asteras peninsula sale
      Ellinikon sale at 140 euros per square meter
      Bond offering at 5% encouraged by the bond companies
      Eurobank sale at 20% of book value
      Distribution of pre-election subsidies equal to the amount from the Ellinikon sale
      Distribution of pre-election bonuses from money from the bond offering.

      Not bad for the last 9 months.

  • of course I agree with the text. Although the 10 billion gap we still pay it through our electricity bill (and other gaps of course). But the most outrageously think is the Exchange of shares between the National Bank and Eurobank in which the shareholders of National Bank firstly asked to reduce the NAV significantly and secondly thw major shareholders of the bank (Latsis) to become major shareholders on the less toxic National Bank of Greece. It’s another success story.

  • Heard a lot about this in advance so the article is no surprise. I have long maintained that Eurobank was the sickest of the Greek banks.

    The type of capitalism that the EU promotes is certainly not the traditional Schumpeter version. The EU is a toxic mix of Soviet style bureaucratic comintern rule on the political side and corporatist, conglomerate economics. Unlike Yanis, I believe the solution is to break it down into smaller (and cleaner) units: i.e. the nation state, drastically reduce the powers of Brussels, eliminate the Euro system and use the ECB as a bad bank to clean up all the bad debt that the system has created.

    This is the usual outcome of overly concentrated political and economic structures that become top heavy and dysfuntional. It happened to Byzantium, the Hapsburg Empire, Nazi Germany and the Soviet Union. On the corporate side, it happens all the time with companies like Tyco, Enron, etc. The bad debt is simply a reflection of the rent seeking economics as any healthy productive economic activity is smothered, tax rates skyrocket and political tyranny spreads.

    My question to Yanis is what Samaras ever learned about corporate finance at Harvard Business School? How did they ever award him a degree in the first place. He seems to have no finance skills whatsoever and he has left the whole administrative machine to the same corrupt PASOK group that has missruled Greece for the last 30 years!!! On the other hand, it exhibits the trophey approach of Harvard and its unholy political dealings, resulting in Papademos and Papandreou visiting professorships and fellowship grants to the likes of Petros Efthimiou.

    Academia does not always have clean hands either…..

    • Samaras does not have basic skills here.

      Sells 7,000 acres to the one and only bidder at a 1/5 of the price Qatar was willing to pay. Not to mention the fact that you never sell 7,000 acres in the city to one and only one group. It is like putting an iron fence around a big part of the city and saying this is now a private club the rest of you 2nd class compress in the rest of city.
      Issues a bond at near 5% on advice from non-other than the premier bond companies, that is 6 times oversubscribed meaning that the interest rate was too high. He knows that Greece cannot survive unless interest rates are near 1%.
      Transfers ownership of a Eurobank majority stake to Ethniki bank for the major Eurobank shareholder to save him from the bankrupt shares and the liabilities. The same investor who bought the 7,000 acres.
      At the same time issues pre-election bonuses to public workers equal to the money collected from the 7,000 acres sale + some of the money collected from the bond offering.

      Most of that happened in the last two months only.

      At the same time he taxes Greeks from 0 income. Does not allow any deductions.
      Taxes real estate based on values from the real estate boom of the last decade.

    • Samaras has no finance skills – this is all the work of Finance Minister Iannis Stournaras.

      Stournaras will move on this month to become Governor of the Bank of Greece (ie the central bank), which is, of course, not independent but a national branch of the ECB. He was also an ECB employee in the 1990s preparing Greece for the euro, and as Yani pointed out recently, was the person responsible for “discovering” money in Greek government accounts that “qualified” Greece for the euro. And as Yani has also pointed out, this was the same move he made 6 weeks ago so that Greece could pretend it has a primary surplus.

      It has been clear for a long time now that Stournaras does not have Greece’s interests in mind, if one defines those interests as the health of the real economy, growth, employment, control of national assets, respect for the law and constitution, and respect for Greek taxpayers. (Note that I put the taxpayers last in the finest Stournaras tradition). Stournaras clearly represents and acts for external interests – Troika, KfW, ECB, Scheuble etc. – and Greek billionaire cronies (bankers, Latsis, Melissanidis etc.). Thus his new job will be a relief to the extent that he doesn’t have to pretend otherwise anymore.

      Your description of EZ/EU capitalism:
      “The type of capitalism that the EU promotes is certainly not the traditional Schumpeter version. The EU is a toxic mix of Soviet style bureaucratic comintern rule on the political side and corporatist, conglomerate economics.”
      is 100% correct and I thank you for it.

    • You are correct Mano. This is a 100% Troika deal leveraging on the fact that Greece needs to raise cash to cover future fiscal holes 2015-2016). It’s sort of the blind leading the blind scenario re: asset maximization. And in essence it was motivated by Troika’s desire to foreclose alterative access to capital for Greece on the belief that a better capitalized Greece equaled loss of negotiating leverage for Troika.

    • Manos,
      You paper over the crucial facts.
      1. How did Latsis keep the Ethinki shares while the merger was called off.
      2. Did Latsis break up his control in pieces to avoid being responsible for the recap of Eurobank? Was that communicated to the other shareholders or did he have information only available to him.

    • @Κωνσταντίνος

      1. The issue of new NBG shares to Eurobank shareholders (including Latsis Family), who had accepted NBG voluntary tender offer, was concluded in late February 2013. In addition, those new NBG shares started trading in the Athens Stock Exchange at the end of February. Thus, that transaction was irrevocable.

      2. Latsis decision to break up his control in pieces (below the 5% threshold) was made public through the following Eurobank announcement:
      But, as I noted in the piece, few noticed that announcement and its implications at that time (July 2013).
      My view (expressed in my blog at that time)
      was that his decision would facilitate a potential merger, which actually happened after 2 months.

    • Manos,

      How was it irrevocable if the merger was cancelled?
      Was it an exchange of shares then?

      If it was what happened to the other shareholders?
      Did they also get Ethniki shares?

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