No easy way for listed firms’ recovery without cost-cutting through mergers

The Greek capital market has to maintain its regional and local character, despite the fact that its Achilles’ heel is its small size, says Christos Spanos, chairman of the Union of Institutional Investors (ETE) and general manager of the Commercial Bank of Greece’s mutual funds company. In an interview with Kathimerini, he also sets out the changes under way in the mutual funds sector and describes the new environment expected to emerge after harmonization with European Union directives. Almost two years after its upgading by Morgan Stanley Capital International’s to mature market status, the Athens Stock Exchange (ASE) can still not compete with the bigger bourses. What is wrong? The Achilles’ heel of the local capital market is its size. One of the basic things they look for abroad is size; what your share capital is, capitalization, turnover, profits, number of employees. Moreover, they are not familiar with the ASE abroad, we are somewhat cut off. The fact that we have been upgraded does not mean that we have rid ourselves of all the characteristics of an emerging market. Time and hard work are needed. What must the ASE do? Is a partnership or merger with a bigger market a solution? I believe that things are not so simple for a small market like ours. Any partnerships or deals must not change the ASE’s local and regional character. Strategically, Greece must be connected with the other Balkan markets, where we have good political relations and some influence, because any growth must be based on expansion in markets that are not saturated and where competition is not on equal terms. Despite EU capital inflows and a buoyancy due to the Olympic projects of 2004, many business sectors are facing problems today. Many fear that things will not be so rosy «the day after.» What do you think the prospects are? It is a question asked by many but with no easy answer. The objective is for EU inflows and the Olympic Games to function as an engine so that the train of the economy retains its speed. The Olympics, for instance, must be exploited in a way that leaves Greek industry with a permanent benefit in the long run. Tourism is a big asset for the country, which is not adequately utilized for lack of a strategy. Economic penetration into SE Europe and development of the tourism sector on another basis could provide the pillars of growth. During the period of stock market euphoria in recent years, listed companies raised huge amounts of capital. One would expect these to give a big push to business growth. But now everyone is talking about excessive borrowing and other problems. What happened? Mistakes were certainly made. Excessive optimism led many to hasty and misplaced moves. Some firms created equity portfolios, others made acquisitions without strategic planning. Also significant amounts were spent on share buyback schemes. Everyone made mistakes. I believe that these have made us all wiser. The upshot of the story is that resources were wasted on non-productive activities. However, to be fair, we must recognize extenuating circumstances in the universal downturn in stock markets. The essence of the problem is that this has made raising capital on the ASE almost impossible and impedes the implementation of investment plans. How far has the effort for restoring the financial health of listed companies gone? Can this be achieved without any blood being shed? I fear that not much can be done without sacrifices. Companies are on the defensive, saving strength. There are too many listed firms on ASE and of related firms providing investment services. The so-called bubble was not just in share prices, it concerned the entire spectrum of the market. Solutions are not easy, but we shall not have any positive results without mergers that will reduce costs and enable firms to acquire competitive size in order to survive in the new economic realities. Institutional investors have come under criticism over their role in the market. ETE represents investment and mutual funds. But institutional investors are also banks, insurance companies, pension funds and any other organization conducting portfolio management. Our role has been misinterpreted and the view has spread among the investment public that institutional investors must, generally, prop up the market. The fact that our clients are mainly small and medium-sized investors and that, therefore, we have to strive to maximize profit and minimize loss in difficult times such as the present, tends to be ignored. Institutional changes At what stage is harmonization with EU directives for the mutual funds market? There are two Community directives. The first concerns the products themselves and their investment choices, and the second refers to an expansion of their scope and management. Our aim, and of the other agencies involved, is to proceed as fast as possible. I estimate we shall have arrived at a draft document on the first directive within November and have completed the groundwork for harmonization with the second one within the first half of 2003. What will these directives change? They both provide us with more weapons in our efforts to provide more credible investment solutions and attract more clients. They will help us, at a difficult time, to expand our goals and do more. As regards the new products, the so-called funds of funds, for instance, will invest in other mutual funds, while index tracking funds will be linked to specific indices. There are some delays in the categorization of mutual funds. Why? There are various views on how far or how fast the categorization can go, whether it must copy a model adopted in other countries, how much time for adjustment must be given to firms. It is worth noting that in most European countries categorization is on a voluntary basis, but here it is compulsory. I do not think the market is looking for a multitude of categories and subcategories. The objective is to achieve an evident relation between name and the character of a fund. Much is being said about the expediencies that underlie the reports by foreign investment banks. How do you judge them? I believe that Greek investors must evaluate with a critical eye some of the forecasts and target prices given by such investment houses, particularly for ASE-listed firms with some weight on the indices. I consider it inconceivable for such analyses not to be based on some data and comments given directly by the firms themselves. Besides, the credibility of some investment banks has been dented in recent years. The Greek market has capable analysts, with first-hand views about the prospects and the management of Greek listed firms.