Ex-Goldman bankers see crisis opportunity in Greek insurance

Alexis Pantazis and Emilios Markou are on a three-year odyssey to become next-generation car insurance executives in Greece that?s a million miles from their previous incarnation as bankers for Goldman Sachs Group Inc.

?One of our investors says you cannot wipe out a country,? said Pantazis, 36, a consultant at Boston Consulting Group before working as an executive director at Goldman Sachs from 2005 to 2008. ?A country like Greece has 11 million people and these people need basic services. They need bread, they need milk, they need car insurance.?

As French banks Credit Agricole SA (ACA) and Societe Generale SA sell their Greek units to exit the only euro area country that?s in need of a second rescue package, Pantazis and Markou see an opportunity. After swapping business-class lounges and sushi for budget flights and sandwiches, the pair began pitching their Internet-based vehicle policies to Greeks two months ago.

The Greek economy has shrunk 20 percent during the debt crisis and protesters took to the streets again this week as the government pushed more cost-cutting measures through parliament. Even with the contraction, the country?s per-capita gross domestic product was 26 percent higher last year than in Poland, the only member of the European Union to avoid recession since 2008, according to data from the Organization for Economic Cooperation and Development.

Goldman lunch

While not for the squeamish, there?s a market here for those who can navigate the economy, said Michael Massourakis, chief economist at Alpha Bank SA, which is acquiring Credit Agricole?s Athens-based unit.

Pantazis and Markou, who met in the Goldman Sachs canteen in London over a sandwich, said their 8.5 million-euro Hellas Direct venture with Munich Re, the world?s biggest reinsurer, as a strategic partner is aimed at a market that resembles the U.K. of the mid-1980s.

They?re seeking to emulate entrepreneur Peter Wood, who turned telephone-only Direct Line into Britain?s biggest car insurer. The company, which was spun off last month by Royal Bank of Scotland Group Plc in an initial public offering, has a market value today of 2.9 billion pounds.

Big enough

Greece is big enough to make a similar company work, according to Pantazis and Markou.

?If they?re well positioned when the recovery starts, the amount of cars will increase again tremendously, but they have to have a strong stomach to get through this period,? Massourakis said. ?Nobody knows how long it?s going to be and whether business is going to be dead or very low.?

About 300,000 cars have come out of circulation in Greece because of the economic crisis, he said. Those will come back when there?s a recovery, he said.

Three years after Greece received the first euro-area bailout, political unrest, financial tumult and strikes continue to plague the country, which has had five prime ministers since Pantazis and Markou started setting up their business in 2009. U.K. finance directors consider Greece a riskier place to invest than Syria, Iran and Iraq, according to an annual survey published Oct. 29 by London-based business consultants at BDO.

Markou and Pantazis brought a group of investors to Greece to meet with the insurance industry regulator in December 2009. The body was closed down a few months later with supervision moving to the Bank of Greece.

?Every time we went to the Bank of Greece the running joke was: ?OK guys we need to be done with you because we have a bond that expires in five minutes,?? said Markou, 41, who worked at Goldman Sachs?s investment bank and financing group for a stint until 2007. ?You become the least important part.?

?Slow moving?

It was ?a slow-moving two years? before the insurance regulatory body was reformed, said Markou. ?It?s like you?re playing a football match and the referee just walked away.?

With Greece in disarray, Markou and Pantazis opted to look at Cyprus, the closest euro-area country to Greece by air. They are now regulated by the Cypriots and authorised to do business in Greece by the Bank of Greece.

With one in four Greeks unemployed, the market is unsteady. Prime Minister Antonis Samaras is asking EU partners for more time to implement austerity measures, including pension and wage cuts, as the country heads for a sixth year of recession.

Coca-Cola Hellenic Bottling SA, the world?s second-largest Coca-Cola bottler and Greece?s biggest company by equity market value, said Oct. 11 that it?s moving its main stock exchange listing to London from Athens, primarily because being seen as a Greek company was hurting its ability to raise debt.

Exiting banks

Credit Agricole agreed to sell its Emporiki unit to Alpha Bank for 1 euro, while Societe Generale is divesting its Geniki unit to Piraeus Bank SA. Banco Comercial Portugues SA said Nov. 5 it had received ?several offers? for its Greek unit Millennium. All are hurrying to protect themselves from lingering doubts that Greece will remain in the euro.

The sale of Emporiki led to a third-quarter net loss of 2.85 billion euros at Credit Agricole, wider than analysts had expected, the French bank said on Friday.

Pantazis and Markou say they were lucky to secure financing commitments from investors before the drachma scenarios became a topic that was seriously discussed as an option for Greece.

Their backers include British venture capitalist Jon Moulton, who is listed on the Hellas Direct website as an adviser, and the Leventis family, which also has members on the board at Coca-Cola Hellenic Bottling.

Drachma effect

?If you are about to invest 500 million in a country, or do some big move, you don?t want to be the idiot that did it 24 hours before the drachma,? said Markou.

They looked at the drachma impact on their business: spare parts for vehicles and imported medical supplies would cost significantly more; nurses would cost less.

The catalyst for the two was the crisis. Even as Greece moves towards the deficit targets to get funds released that will allow the government to pay bills and recapitalise its banks, some progress is being made.

Closed professions, which include insurance brokers, are to be opened up under the EU and IMF recovery plan. Greece was among the 10 countries ?most improved globally? in the ease of doing business, ranking 78 of 185, the Washington-based World Bank said in a report on Oct. 23.

?If you look at the history of Greece in the last 30 years now is probably the best time to get to the ear of the consumer,? said Markou. ?Five years ago the guy would have said I don?t care, I?m happy, I have money or I think I have money. Right now, people are asking questions: what political party to vote for, what newspaper to read, what insurance company to choose.?

[Bloomberg]