(This article is in response to many readers who asked me to write on the latest developments at the National Bank of Greece.)
For the longest time, I have been calling for a complete overhaul of the Greek banking system. And by that I mean, among other things, a complete change of management on the boards of these companies.
Unfortunately, ever since the start of the Greek crisis, no one bothered with the issue. As such, the same people who were in charge of making a mess of the country (as far as banks are concerned) remained in their positions, earning their big fat checks as though nothing had happened.
That is until several months ago, when HFSF (Hellenic Financial Stability Fund) finally decided that enough is enough and that more competent people need to serve on these bank boards.
(As a side note, HFSF was an embarrassment in itself and just as incompetent as everyone else in Greece. But when pressure finally came from the ECB's SSM (Single Supervisory Mechanism), things started to change. I can now say that things are finally heading in the right direction. Better late than never.)
So several months ago, the boards of Greek banks started to change. Probably the biggest surprise to all (not me) was the resignation of Michael Sallas, the chairman of Piraeus Bank (OTCPK:BPIRF). Sallas had been the chairman of the bank for the past 25 years, and until recently, was thought to be "untouchable".
Press sources in Greece said the main reason for his departure was a fight with the bank's biggest shareholder, Paulson & Co. However, I also think there was pressure from the ECB itself.
Probably one of the most embarrassing moments in Greek banking history was the appointment of Louka Katseli as chairman of the National Bank of Greece (OTCPK:NBGIF). Katseli is a political dinosaur from the long lost days of Greek socialism. The current left wing government of Greece thought that by appointing her, it could do whatever it wanted with the bank.
But even if you control the entire board, if a bank is bankrupt (like all Greek banks are, perhaps with the exception of EuroBank (OTCPK:EGFEF)), then all the political muscle in the world will do you no good. Because when a bank has no money, it cannot lend to anyone, including any crony capitalist friends of the government itself.
So what if HFSF owns 40% of the bank
Like I said, even if HFSF was itself an embarrassment, lately things have been heading in the right direction - primarily because of pressure from the ECB. So finally, HFSF decided to put someone it trusts at the helm of NBGIF.
That someone goes by the name of Dimitris Tsitsiragos, whom HFSF wanted to appoint as non-executive chairman. I don't know who he is, but I am assuming he knows more about banking than most of the bank's board does.
In any case, the board of NBGIF decided to disregard the wishes of its biggest shareholder and elect Panayiotis Thomopoulos as non-executive chairman. (Please note, HFSF owns 40% of NBGIF.)
That infuriated HFSF, which at some point contemplated calling a general shareholders meeting, with the intent of making it clear that is has no trust in the bank's board, and elect a new board.
For the time being, however, the SSM has told HFSF not to make such a move, and currently, everyone is trying to play nice, saying that the Greek banking system needs to be united for the sake of the economy, etc.
Why did NBGIF's board insist on Panayiotis Thomopoulos?
It needs to be understood that until a few years ago, NBGIF's employs were considered civil servants. Due to the fact that years ago the bank was owned by the government of Greece, its employees had civil servant status.
That civil servant mentality still exists among most of the bank's employees, especially upper management. It's the high-paying jobs these folks want to preserve.
As a result, the board would prefer someone it knows, someone it is cozy with, and someone who will not step on its toes in these difficult times. I am guessing the board thinks Panayiotis Thomopoulos is such a person.
With 40 years of experience in the country banking sector, Thomopoulos knows just about everyone. Among other things, he was also the deputy governor of the Bank of Greece for several years, meaning he knows just about every top-level executive in Greece.
They say you need to break eggs to make an omelet. The problem is that in Greece, no one wants to make an omelet. The more things change, the more they remain the same in the country. And simply put, the quarrel about the appointment of a non-executive chairman at NBGIF is nothing else but a fight to death of managers trying to hold on to their extremely high-paying jobs.
So what now
Well, things are calm at the moment. However, what is important here is to make investors see the way management thinks. Frankly, no one cares about shareholders, not even if the shareholder in question owns 40% of the bank. And it's not just management - politicians in Greece are even worse.
It amazes me time and time again that anyone in their right mind would believe a left wing government like SYRIZA cares for shareholders or anyone who has ever invested a dime in Greece. These people are doing everything in their power to discourage investment in the country.
As for the fate of NBGIF, I am sorry to say, I have no good news. Already there is talk of another round of capital raising for banks. And this time around, shareholders, bondholders (if there are any left) and uninsured depositors will take the hit.
European officials have said repeatedly over the past several weeks that in the event more capital is needed (and in my opinion, it is needed), then all the above will be the ones paying the price.
So if you are a NBGIF shareholder, please be prepared for the worst-case scenario, which is none other than a total loss due to nationalization of the bank. Whether it will happen or not I do not know, but if more capital will be needed, this is the likely scenario that will emerge.
As for Paulson & Co., which has invested several hundred million dollars in Piraeus Bank and Alpha Bank (OTCPK:ALBKF), I am sorry to say it will lose every euro cent it invested.
Finally, if any of you hedge fund folks decide to invest in Greece, please get in touch with me before you do. I only charge a modest fee, and chances are you will save or make millions.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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