COMMENT

John Paulson: We believe in the future of Greek banks

ALEXIS PAPACHELAS

TAGS: Interview, Banking, Finance

Billionaire hedge fund manager John Paulson says he believes in the future of Greek banks and the growth potential of the country’s economy.

In an interview with Kathimerini’s Sunday edition, the American investor – whose Paulson & Co fund is the biggest private-sector shareholder in Greece’s Piraeus Bank – says that the key to restoring investor confidence in the debt-wracked country is lowering taxes and reducing the size of the public sector.

“If Greece were to follow this recipe, then in this country too there would be a burst of investment activity and economic growth,” he says.

You have invested considerable amounts in Greece. How do you assess your investments so far and are you going to remain engaged in the Greek market?

Our investments have been primarily in the banking sector, specifically Alpha Bank and Piraeus Bank, where we have provided capital to help bring the banks back to good health. We have persevered with these investments and provided financial support in a difficult and volatile environment, when many other investors chose to stay away or were short-term in their approach.

We believe in the future of the banks and in the growth potential of the Greek economy and so we are here to stay.

As a foreign investor what are the pros and cons you see in the country at this point? What is the upside, what are the risks and hurdles for somebody from the outside?

Despite all the challenges of the economic crisis, Greece remains a country with great potential. Greece’s key asset is its people, who are hard-working, resilient and entrepreneurial. If appropriate reforms are implemented, then investors will bring more capital to fuel growth and the nation will once again enjoy prosperity. The risk is that the necessary reforms will not be made and the economy will remain in the doldrums, which would be a bad result for the Greek people and investors alike.

What will it take to restore investors’ confidence in Greece? Do you see this happening any time soon?

Time and again around the world, we see the successful recipe for raising living standards to be lowering taxes and reducing the size of the government sector. If Greece were to follow this recipe, then in this country too there would be a burst of investment activity and economic growth. Investors and other stakeholders would be reassured that Greece would be capable of generating consistent and sustained economic improvement. This would set off a virtuous cycle of job creation, rising living standards and yet more investments. We remain hopeful that policy makers will choose to implement reforms conducive to investment and growth.

Are you concerned about the need for a third recapitalization for the Greek banks? How can it be avoided?

We invested in Alpha Bank and Piraeus Bank following a full asset quality review and stress test performed by the European Central Bank. The ECB required the banks to raise enough capital to withstand a GDP contraction of -3.3 percent in 2015 and -3.9 percent in 2016. Although conditions remain challenging in Greece, the economy has not contracted to anywhere near this degree, and we are confident that the ECB was conservative in its approach.

At the same time, we need to see certain things happen before the banks are out of the woods. First, as already mentioned, the government needs to implement reforms that generate economic growth. This will attract further investment, raise asset values and accordingly make it easier for the banks to address their portfolios of non-performing loans in ways that do not require additional capital to be raised. Secondly, the senior executive management at the banks must take decisive steps to address the NPL challenge.

We should not forget that the Greek state itself has invested a large amount of taxpayers’ money in the banks and so the Greek people have a direct interest in ensuring that their investment is protected and the state aid is repaid. Staffing the banks with the best managers available should be the Greek state’s goal as much as it is ours.

You have blocked numerous nominations for the position of CEO at Piraeus Bank. What is the reason behind your insistence which has caused a prolonged period of limbo in the bank’s management?

We have not blocked and do not have the ability to block candidates. What we and other significant shareholders have been saying consistently is that only the reconstituted board of Piraeus will be able to attract and hire the new CEO. This is obviously consistent with principles of good corporate governance. When a bank is recapitalized to the extent Piraeus was in 2015, there is a change in ownership that must be reflected in the board; and the new board must then take responsibility for the CEO appointment.

This is the correct sequence.

There were delays in instituting necessary changes in the board that have been completed within recent days. The changes are very positive for the bank. The new chairman, George Handjinicolaou, who is a Greek expatriate, is the Deputy CEO of ISDA and has led a successful career over three decades in London and New York. The board has also added several other experienced non-executive directors, who are Karel DeBoeck, former CEO of Belgian banks Dexia and Fortis; Arne Berggren, a bank restructuring specialist with over 25 years’ experience in 20 countries; David Hexter, previously a senior banker at Citibank and a former head of financial institutions at the European Bank for Reconstruction and Development; Enrico Cucchiani, the former CEO of Intesa Sanpaolo, Italy’s largest bank; Solomon Berahas, a senior risk adviser with 33 years’ experience, including at Citibank; and Alexander Blades, a partner at Paulson & Co. and formerly of Goldman Sachs and Skadden Arps, with expertise in corporate restructurings and workouts. With these additions the board is now in a position to proceed with a proper process, in line with best international practices, to find a highly capable CEO.

Rumor has it that you want Mr. Anthimos Thomopoulos as the new CEO and if that is not possible you would rather see the bank go into resolution or to a non-Greek CEO. Your response?

We simply think the bank should find the best candidate for the job based on merit. Piraeus needs a manager that has the operating skills, experience and track record to be an effective CEO and create value for all shareholders. It is only this type of manager that can make the bank prosper. The assessment of the candidates should be made by reference to objective criteria, and not be influenced by personal or political agendas. No candidate that satisfies the foregoing profile should be ruled out.

The suggestion that we would prefer to see the bank placed in resolution makes no sense at all. This would wipe out our investment. Obviously we would want to avoid that.

There is a perception that you are not interested in having Piraeus run as a bank and that your end goal is the NPL assets, which you would like to strip and sell. Is this true?

Our goal is for the banks to realize the highest possible value for the NPLs. This would create the most value for shareholders, and we and the Greek government, as common shareholders, would both benefit. We have no interest in buying NPLs. The banks themselves are best positioned to work out the NPLs as they have the capital, the funding and the personnel to address the issue. Beyond the NPLs, we have invested in the banks because we believe that the restructuring of the Greek banking system will create strong, efficient banks that will ultimately thrive and grow.

That’s where the real value will be.

Is there a way out of the current impasse in the bank?

Now that significant changes have occurred at the board level, we don’t see any impasse. The Nominations Committee of the board, acting in a deliberative fashion referring to objective criteria and according to best international practices, will conduct a process to find the best CEO candidate available. We are optimistic that the bank will choose the right person for the job.

Online