Bond deal goes sour

JP Morgan refuses to pay back interest to pension funds

A draft law to safeguard the investments made by pension funds was submitted to Parliament yesterday as the deal for investment bank JP Morgan to buy back the structured bond that sparked the change to Greek legislation appeared to have collapsed.

The agreement for JP Morgan to buy back the 280-million-euro state bond at the center of the scandal hit a serious stumbling block as the US bank refused to return the interest the four funds had incurred since the transaction.

The Pharmaceutical Workers’ Auxiliary Pension Fund (TEAYFE), the Social Insurance Workers’ Auxiliary Pension Fund (TEAPOKA), the Newspaper Sellers’ Pension Fund (TSEYP) and the Civil Servants’ Auxiliary Pension Fund (TEADY) had pressured JP Morgan into also giving them the interest for the last three months on the money they spent to purchase the bond.

The financial institution refused to foot the bill, which is estimated to be around 3 million euros. It is thought that JP Morgan also objected to TEADY requesting in writing that the bank cover “the losses” the fund suffered as a result of purchasing the bond.

The government had hoped for a deal so the matter could be put to bed. Sources said the ruling conservatives are unhappy that the funds insisted on being paid interest.

The government is now considering whether to pay back the interest from state funds.

The bill submitted yesterday allows pension funds to invest only 2 percent of their reserves in structured bonds from the Greek state, not foreign banks. Structured bonds are seen as a risky form of investment because they do not give a fixed interest rate for their duration.

The draft law also calls for the creation of a committee to oversee the investments made by the pensions funds.

The preliminary investigation into the purchase of the bond by the four pension funds is set to wind up in about two weeks, sources said yesterday.

Appeals prosecutors Antonis Liogas and Grigoris Peponis are expected to issue charges against those suspected of wrongdoing by the end of this month.

Approximately 25 people have been called in to testify on suspicion of breaking the law during their involvement in the transactions.