Banks recapitalised as part of Greece’s bailout may be forced to overhaul their management and governance, the European Commission said, in response to questions raised by Reuters about alleged malpractice at Greece’s fourth-largest bank.
In a statement, the European Union’s executive arm said Greek banks would face due-diligence audits and possible management shake-ups in return for their share of billions of euros from the region’s taxpayers and the International Monetary Fund.
“The recapitalisation process will entail a significant revamp of corporate governance structures and management practices in banks where malpractice has occurred,» said Antoine Colombani, the Commission’s spokesman on competition and antitrust issues.
The Commission was responding to a Reuters article of July 16 which reported that the chairman of Piraeus Bank, Michalis Sallas, and his children had taken out loans of more than 100 million euros to secretly buy shares representing an undeclared family stake in the bank of more than 6 percent.
In a written response to questions, the European Commission, the EU’s executive and a party to Greece’s 130-billion-euro ($156 billion) bailout, said it was following the issue in conjunction with Greek authorities.
“We understand that the national authorities are enquiring into the transaction to verify whether any regulatory provisions have been breached,» said Colombani.
“In the meantime, we are aware that Mr Sallas is not in the executive board of the bank anymore.”
The competition authority is one of several Commission departments involved in monitoring Greece’s bailout obligations, including whether EU rules on state aid are being met. Under those rules, EU regulators can force an institution such as a bank to make management changes or even be wound up.
Colombani said the recapitalisation of Greek banks, which involves funds from the euro zone’s bailout fund being transferred to a Greek-administered facility called the Hellenic Financial Stability Fund, would be tightly monitored, a process that could include demands for management changes.
“The Hellenic Financial Stability Fund is already conducting due diligence in the banks to be recapitalised by the programme funds,» he added, referring to the funds being transferred from the euro zone’s EFSF facility.
Colombani declined to say which banks could face action. The top four banks in Greece – National Bank of Greece, Eurobank, Alpha Bank and Piraeus ? offered no immediate comment on the Commission’s statement. «The bank could not be affected because it has nothing to do with such issues,» said a Eurobank official who declined to be named.
“A vital part of the Herculean task of the reform project in Greece should be governance reform,» said Michael Jacobides, an associate professor at the London Business School.
“Resistance is rife as change would require, among other things, unsettling cosy habits of Greece’s business elite, or severing mutually beneficial ties between business leaders and politicians,» said Jacobides, a Greek national.
For the European Commission, the first priority is the recapitalisation of Greece’s banking sector, which had to write down the value of its holdings of Greek government bonds by nearly 70 percent as part of the debt restructuring – a move that wiped out a significant portion of the capital base.
“The recovery of the Greek economy will not be possible without a strong and well-capitalised banking sector,» said Colombani, the Commission’s competition spokesman.
“Mostly as a result of the deterioration in the economy and the impact of PSI (private sector involvement in the debt restructuring), most Greek banks have seen a large share of their capital base eroded.»