More bank selloffs ahead, but does the State have a strategy?

Last week’s announcement by Economy and Finance Minister Nikos Christodoulakis on the privatization of the Agricultural Bank of Greece (ATE) revived market interest in the sector and brought to the fore a variety of scenarios about the next phase of the restructuring of Greece’s banking sector. The ATE case showed that the State remains the most important player in this game. However, despite the fact that there have been enormous changes in the financial sector over the past few years, almost all of them positive, no one can claim that the government possesses a clear-cut strategy. Several important issues are pending. One, and not the least important, concerns the Commercial Bank of Greece. At present, it has entered into a partnership with France’s Credit Agricole Indosuez, which holds a 6.7-percent stake in Commercial. Commercial would like to see the French expand their stake, but if they refuse things could get complicated. What would happen if, for example, another Greek bank expressed interest in a stake in Commercial? Other issues pending concern General Bank’s strategic partnership, possibly with a foreign institution, while no one has said a word about Bank of Attica, the smallest state bank. Today’s prime target for privatization is the Postal Savings Bank, with its very large portfolio of housing loans. The government seems to want to postpone privatization for 2003. But two years in today’s changing economic climate is too long, a fact that cannot have escaped either Christodoulakis or Transport and Communications Minister Christos Verelis, who is the bank’s supervising minister. Moreover, the government is about to invest billions of drachmas in a new computer system and in personnel training. Why should it invest that money if its purpose is to sell the bank? This government, which has brought the country into the eurozone and underpins a good deal of its reformist policies on the banking system, is being forced to drag its feet by an ineffective state administration. Take the privatization of ATE. In itself, it is a positive step. The government, however, has decided to lower its stake in the bank from 85 to 35 percent in three stages. First, by selling a 10-percent stake through the stock market through a public subscription; second, by transferring 8 percent to institutional investors and farm cooperatives in block trades; and third, by finding a strategic partner for ATE. The sale by public subscription is fine. But where does the government think the debt-burdened cooperatives will find the money to acquire the shares? They have recently been forgiven 90 billion drachmas in overdue loans, which is only a fraction of their total indebtedness. Never mind the cooperatives’ claim that the bank should be placed in their ownership. They know they cannot handle it. Concerning the strategic investor, both Christodoulakis and the Bank of Greece are already aware of the Piraeus Bank’s interest. Having failed to acquire either Ionian Bank or ErgoBank, Piraeus’s chairman, Michalis Sallas, is eager to try and acquire ATE. The difficult thing, however, for Sallas or any other prospective buyer is not the acquisition but the challenge of turning ATE around into a healthy financial institution. Years of state management and the constant forgiving of farmers’ debts have left their mark.