Another shady Greek banking deal: An exchange with Klaus Kastner on the Pireus-MIG deal

imagesThe sordid relationship between the owners of the Bank of Pireus and MIG (a holding company that used to own one of the two failed Cypriot banks, as well as a swathe of Greek companies) is well documented. Recently we witnessed a new chapter in this saga, one that went almost unnoticed and which was quietly condoned (like all recent scandals) by the Athens government and the troika. Klaus Kastner blogged on this deal in a highly informative recent post, entitled MIG: A great place to invest €250 million?,  and also sent me an email with the following question/point:  “It baffles my mind how a bank like Piraeus where the state has part-ownership would buy €250 million convertibles of the holding company of a group which is as shaky as the MIG Group (unless, of course, the 250 MEUR were used to repay loans to Piraeus). MIG may have operating companies of operational worth and market prominence but the whole group is built on hot air and, at least for the time being, the operating companies are incurring horrendous losses.” My answer to Klaus follows…

Dear Klaus,

You are, of course, spot on. This deal makes no sense except in the context of the tangled web of accumulated debt binding Pireus and MIG. To be more precise, of MIG’s  €1.37 billion debt something between €700 to €780 million are owed to… Pireus. Of those debts some are due to past Pireus loans to companies in MIG’s portfolio and others due to the complex deal by which the branches of the Cypriot banks were ‘transferred’ to Pireus ownership.

In this context, from quasi-insolvent MIG’s perspective, the deal represents a badly needed capital infusion (as opposed to a refinancing deal). And from the perspective of Pireus, it reduces its… exposure to loans extended to MIG.

When last year the Cypriot banks folded, Pireus rushed in to buy MIG’s Marfin-Laiki Bank and the greek branches of the Bank of Cyprus. It paid next to nothing for these. In the process, together with the Cypriot banks’ Greek branches, Pireus acquired, at a 50% discount, loans worth (at least on paper) €325 million, netting a paper gain for Pireus of around €160 million.

You should not be be surprised that last year’s purchase of the folded cypriot banks was underpinned by a promise such as: “You hand over to me now the Cypriot bank branches, including the discounted loan portfolio, and I shall repay you next year with a capital infusion which reduces your exposure to me and my exposure to you.”

If, lastly, you place this new deal in the context of the sordid past relationship between the ‘brains’ behind these two organisations, the picture becomes astonishingly clear. And the Greek government’s (as well as the troika’s) connivance in it astoundingly repulsive.

Klaus Kastner added the following remark:

Dear Yanis,

It’s the numbers which are staggering! If this is not a refinancing deal and if Piraeus had an exposure of, say, €750 million  before, they now have an exposure of €1 billion. Surprises me that this even fits the bank’s legal limit to one borrower. The group isn’t really all that large. Seems more like a conglomerate of medium-sized companies. Is the ‘quasi-insolvent perspective’ your perspective or is this view shared in the market? Would Piraeus have made loan loss provisions for this exposure or would they carry the loans as performing? Seems to me that the ECB will have a lot of fun with this exposure when they do the stress tests…


Following these exchanges, Dean Plassaras offered a justification for the MIG-Pireus deal (see comments below) to which Klaus replied with this (splendid in my eyes) missive.



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  • All kudos to Klaus and Yani for this expose! I doubt that anyone would have noticed but for your two excellent blogs.

    • I fail to see how this report invalidates in any way the analyses by Klaus and Yanis. The fact that the Greek economy is collapsing, and is populated by “zombie” companies is no reason to engage in fraudulent accounting and unjustifiable acquisistions by banks. You do not solve economic problems by pretending that they do not exist: this is the short term strategy that fools engage in. It is the strategy of Merkel and co.

  • Please guys. This conspiratorial frame of mind is getting ridiculous. This a forerunner to a “good bank” vs. “bank bad” separation which all Greek banks are asked to undergo on a mandatory basis. It’s not like they have a choice. The immense red loan problem (created wholly by Troika’s PSI nonsense) could mostly be solved via the creation of a bad bank scheme to clean up the books. In addition to residential loans there is a number of zombie Greek private companies in various industrial sectors that need restructuring otherwise they are chocking the entire Greek economy by preventing the flow of credit and liquidity.

    “The deal comes after a 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”

    . – See more at:

    “Having absorbed as many as six banks in recent months, Piraeus now finds itself 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.

    For instance, in coastal shipping, Piraeus is the biggest creditor of ANEK, whose bank obligations amount to 400 million euros. In health, Piraeus is the main creditor of the Henry Dunant Hospital, through the former ATEbank, while it now also holds stakes in a number of dairy companies and cooperatives. In addition, the lender is among the main creditors of companies in the sectors of fish farming, information technology and tourism.

    MIG controls 92 percent of food and dairy industry Vivartia, 89 percent of coastal shipping firm Attica, 70 percent of healthcare group Hygeia and 86 percent of IT company Singular Logic, to name but a few. Analysts say that ANEK, the Henry Dunant Hospital and other companies could join up with their MIG counterparts, thereby creating stronger and more competitive corporations. That way the Piraeus Group would resolve longstanding problems in its financial reports and reap capital gains as MIG’s main shareholder.

    Nevertheless, Piraeus sources say that even though the group is going to play a decisive role in the restructuring of sectors and enterprises – with a special unit already set up within the bank to that end – Wednesday’s agreement for the acquisition of a 17.7 percent stake in MIG through convertible bonds should not be associated with this crucial strategy.

    Bank of Greece Governor Giorgos Provopoulos has repeatedly called on commercial banks to take the initiative in terms of restructuring business forces. He has said that just as in the successful consolidation of the credit sector, banks should take a leading role in the restructuring of the economy’s other sectors. Provopoulos adds they ought to encourage business cooperations that will lead to stronger and more competitive units. He has also asked for banks to proceed to the targeted channeling of funding to healthy sectors and enterprises so as to support the economy’s new, outward-looking production model.”

  • Below is the reaction from my contact at the Bank of Greece. He is an oldtimer in a senior position but I obviously cannot mention his name.

    “Although I have always been taking Varoufakis’ views with a pinch of salt, especially when it comes to the issue of the Eurozone Greek membership, I shall agree with the point made herewith.

    The problem, however, lies with the Head of the Bank of Greece who is held responsible for a number of such shady dealings. The funny thing is that even though the market has long ago been accusing him in cases like the enforced purchase of Greek bonds by private entities shortly before the haircut and his relations with the head of Piraeus Bank, nobody talks about these issues now!

    By contrast he has embarked in an extensive public relations campaign, asking – almost begging – the Prime Minister to renew his term in the Bank of Greece for six more years!

    It was encouraging that you have pointed the matter out to me. But it seems it is just you so far!

    Let’s hope that more will follow. However, a follow up in your blog on the issue would contribute to the direction of replacing this person in the next few days, as his term expires mid-June”.

    • This additional gossip is off topic. It has nothing to do with the merger of Piraeus/MIG which is based on asset synergy.

      The rest is for old ladies drinking tea and baking cookies while bad mouthing the entire neighborhood and drowning on gossip and innuendo.

      This is ambulance chasing with zero substance.

  • @Dean 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.

    • Klaus:

      Forgive me if I don’t engage on a point by point rebuttal because we are way off the original topic which is the meaning and necessity of the Piraeus/MIG merger/swap.

      I think you have a fertile imagination and if you want to write a fiction book on the Greek crisis featuring prominently Herr Schauble as the poor victim of Papandreou’s advice on Grexit please go right ahead. I am sure it would be enjoyable. Already today Schauble is spewing his unbelievable nonsense that the Grexit idea was not his but that somehow it came from Papandreou whose democratic credentials Schauble truly doubts. This is like saying the satrap of the EU dictatorship finds the Athens democratic system as a poor variation/imitation of Persian absolutism.

      The fact all 3 sources quoted convey the same message is because they are supposed to do just that. There is one truth and provided that you within range then the message is the same: i.e. that there is a business reason for the PIraeus/MIG deal and not a conspiratorial plot.

      As to the zombie Greek industries there are only 650 of them and they need immediate cleaning if the system is to survive to move forward. In order to do so you have to merge a few mediocrities and produce a champion (star performer) in their place. The Piraeus/MIG provides a possible platform for such transformation(which takes skill among other things).

      If you don’t like the solution devised then feel free to give us a better one. But for heavens sake, enough with this never ending grievance case against Greece, the Greek economy and the duplicitous banks.

    • Klaus the official line is that it is about corporate restructuring. But you as a “banking guy” need to look deeper into it and comprehend the overall picture.

      This is transaction which both benefits MIG and PIraeus. Piraeus has acquired “for a consideration of 165 million euro loans, bonds and shares of aggregate value in excess of 325 million euros, making this a highly profitable transaction while at the same time reinforcing the financial health of MIG Group.” (official line)

      Also following an agreement with the Bank of Cyprus, MIG’s subsidiary Robne Kuce Beograd’s loans of 75 million euros and 250 million euros were transferred to Piraeus at a cost of 165 million euros.

      “Refresh that Piraeus has been committed to buy MIG’s unsold convertible bonds worth at least 90 million euros, at a conversion price of 0.54 euros per share. The value of the deal is estimated at 250 million euros, purchasing the bonds at their nominal value. The deadline for the placement of the bond is June 30, 2014.”.

      The long term objective is to enhance the viability of troubled assets (aka the bank’s red loans) against extensive collaterals.

      In essence Piraeus acquire bought a collateral at a discount and with it the right to charge off the difference between 325 Mil. minus the 165 Mil. (see above) for troubled assets in its portfolio. This, regardless of the official line, tells you that Piraeus is preparing for future red loan charge offs and this is an intermediate step towards such goal.

      Given the fact that you claim 40 years in banking I am amazed that you don’t get the obvious strategy and instead you engage in co-conspiratorial plots in effect misleading the author.


      Your inflammatory comment in your blog (Observing Greece) that “Dean Plassaras engaged in a violent attack” towards you in this Varoufakis blog entry is pure Austrian nonsense. If you want to engage in debate please do your research first, interpret the data correctly second and think as a strategist third. And you need to learn to synthesize effectively all three with a strong bias towards strategy. After 40 years of experience your interpretation of pro forma banking moves is that they are defrauding the state and investors? Has the banking profession treated you unkindly? What would you say to Piraeus’ CEO Sallas if he asked you as a fellow banker to explain your position?

  • Good job to both teams Yani and Klaus on one hand and hard working Dean on the other. Before the Spring 2015 sets in, we’ll see if the speculation is analogous to “kolouria baking kotsobolio” or spot on analysis. Regardless it was good work on both. People that distrust the system and people which hope we can survive without structural change.

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