John Paul­son: We be­lieve in fu­ture of Greek banks

In­vestor and owner of the big­gest pri­vate share­holder in Pi­raeus Bank sees po­ten­tial for growth in the econ­omy, if cer­tain key steps are taken

Kathimerini English - - Focus - BY ALEXIS PAPACHELAS

Bil­lion­aire hedge fund man­ager John Paul­son says he be­lieves in the fu­ture of Greek banks and the growth po­ten­tial of the coun­try’s econ­omy.

In an in­ter­view with Kathimerini’s Sun­day edi­tion, the Amer­i­can in­vestor – whose Paul­son & Co fund is the big­gest pri­vate sec­tor share­holder in Greece’s Pi­raeus Bank – says that low­er­ing taxes and re­duc­ing the size of the pub­lic sec­tor is key to restor­ing in­vestor con­fi­dence in the debt-wracked coun­try.

“If Greece were to fol­low this recipe, then in this coun­try too there would be a burst of in­vest­ment ac­tiv­ity and eco­nomic growth,” he says.

Our in­vest­ments have been pri­mar­ily in the bank­ing sec­tor, specif­i­cally Al­pha Bank and Pi­raeus Bank, where we have pro­vided cap­i­tal to help bring the banks back to good health. We have per­se­vered with these in­vest­ments and pro­vided fi­nan­cial sup­port in a dif­fi­cult and volatile en­vi­ron­ment, when many other in­vestors chose to stay away or were short-term in their ap­proach.

We be­lieve in the fu­ture of the banks and in the growth po­ten­tial of the Greek econ­omy and so we are here to stay.

De­spite all the chal­lenges of the eco­nomic cri­sis, Greece re­mains a coun­try with great po­ten­tial. Greece’s key as­set is its peo­ple, who are hard-work­ing, re­silient and en­trepreneurial. If ap­pro­pri­ate re­forms are im­ple­mented, then in­vestors will bring more cap­i­tal to fuel growth and the na­tion will once again en­joy pros­per­ity. The risk is that the nec­es­sary re­forms will not be made and the econ­omy will re­main in the dol­drums, which would be a bad re­sult for the Greek peo­ple and in­vestors alike.

Time and again around the world, we see the suc­cess­ful recipe for rais­ing liv­ing stan­dards to be low­er­ing taxes and re­duc­ing the size of the govern­ment sec­tor. If Greece were to fol­low this recipe, then in this coun­try too there would be a burst of in­vest­ment ac­tiv­ity and eco­nomic growth. In­vestors and other stake­hold­ers would be re­as­sured that Greece would be ca­pa­ble of gen­er­at­ing con­sis­tent and sus­tained eco­nomic im­prove­ment. This would set off a vir­tu­ous cy­cle of job cre­ation, rising liv­ing stan­dards and yet more in­vest­ments. We re­main hope­ful that pol­i­cy­mak­ers will choose to im­ple­ment re­forms con­ducive to in­vest­ment and growth.

We in­vested in Al­pha Bank and Pi­raeus Bank fol­low­ing a full as­set qual­ity re­view and stress test per­formed by the Euro­pean Cen­tral Bank. The ECB re­quired the banks to raise enough cap­i­tal to with­stand a GDP con­trac­tion of -3.3 percent in 2015 and -3.9 percent in 2016. Al­though con­di­tions re­main chal­leng­ing in Greece, the econ­omy has not con­tracted to any­where near this de­gree, and we are con­fi­dent that the ECB was con­ser­va­tive in its ap­proach.

At the same time, we need to see cer­tain things hap­pen be­fore the banks are out of the woods. First, as al­ready men­tioned, the govern­ment needs to im­ple­ment re­forms that gen­er­ate eco­nomic growth. This will at­tract fur­ther in­vest­ment, raise as­set values and ac­cord­ingly make it eas­ier for the banks to ad­dress their port­fo­lios of non­per­form­ing loans in ways that do not re­quire ad­di­tional cap­i­tal to be raised. Sec­ondly, the se­nior ex­ec­u­tive man­age­ment at the banks must take de­ci­sive steps to ad­dress the NPL chal­lenge.

We should not for­get that the Greek state it­self has in­vested a large amount of tax­pay­ers’ money in the banks and so the Greek peo­ple have a direct in­ter­est in en­sur­ing that their in­vest­ment is pro­tected and the state aid is re­paid. Staffing the banks with the best man­agers avail- able should be the Greek state’s goal as much as it is ours.

We have not blocked and do not have the abil­ity to block can­di­dates. What we and other sig­nif­i­cant share­hold­ers have been say­ing con­sis­tently is that only the re­con­sti­tuted board of Pi­raeus will be able to at­tract and hire the new CEO. This is ob­vi­ously con­sis­tent with prin­ci­ples of good cor­po­rate gov­er­nance. When a bank is re­cap­i­tal­ized to the ex­tent Pi­raeus was in 2015, there is a change in own­er­ship that must be re­flected in the board; and the new board must then take re­spon­si­bil­ity for the CEO ap­point­ment. This is the cor­rect se­quence.

There were de­lays in instituting nec­es­sary changes in the board that have been com­pleted within re­cent days. The changes are very pos­i­tive for the bank. The new chairman, Ge­orge Hand­jini­co­laou, who is a Greek ex­pa­tri­ate, is deputy CEO of the In­ter­na­tional Swaps and De­riv­a­tives As­so­ci­a­tion (ISDA) and has led a suc­cess­ful ca­reer over three decades in Lon­don and New York. The board has also added sev­eral other ex­pe­ri­enced non-ex­ec­u­tive direc­tors, who are Karel De Boeck, for­mer CEO of Bel­gian banks Dexia and For­tis, Arne Berggren, a bank re­struc­tur­ing spe­cial­ist with over 25 years’ ex­pe­ri­ence in 20 coun­tries, David Hex­ter, pre­vi­ously a se­nior banker at Citibank and a for­mer head of fi­nan­cial in­sti­tu­tions at the Euro­pean Bank for Re­con­struc­tion and De­vel­op­ment, En­rico Cuc­chi­ani, for­mer CEO of In­tesa San­paolo, Italy’s largest bank, Solomon Ber­a­has, a se­nior risk ad­viser with 33 years’ ex­pe­ri­ence, in­clud­ing at Citibank, and Alexan­der Blades, a part­ner at Paul­son & Co and formerly of Gold­man Sachs and Skad­den Arps, with ex­per­tise in cor­po­rate re­struc­tur­ings and work­outs. With these ad­di­tions the board is now in a po­si­tion to pro­ceed with a proper process, in line with best in­ter­na­tional prac­tices, to find a highly ca­pa­ble CEO.

We sim­ply think the bank should find the best can­di­date for the job based on merit. Pi­raeus needs a man­ager that has the oper­at­ing skills, ex­pe­ri­ence and track record to be an ef­fec­tive CEO and cre­ate value for all share­hold­ers. It is only this type of man­ager that can make the bank pros­per. The as­sess­ment of the can­di­dates should be made by ref­er­ence to ob­jec­tive cri­te­ria, and not be in­flu­enced by per­sonal or po­lit­i­cal agen­das. No can­di­date that sat­is­fies the fore­go­ing pro­file should be ruled out.

The sug­ges­tion that we would pre­fer to see the bank placed in res­o­lu­tion makes no sense at all. This would wipe out our in­vest­ment. Ob­vi­ously we would want to avoid that.

Our goal is for the banks to re­al­ize the high­est pos­si­ble value for the NPLs. This would cre­ate the most value for share­hold­ers, and we and the Greek govern­ment, as com­mon share­hold­ers, would both ben­e­fit. We have no in­ter­est in buy­ing NPLs. The banks them­selves are best po­si­tioned to work out the NPLs as they have the cap­i­tal, the fund­ing and the per­son­nel to ad­dress the issue. Be­yond the NPLs, we have in­vested in the banks be­cause we be­lieve that the re­struc­tur­ing of the Greek bank­ing sys­tem will cre­ate strong, ef­fi­cient banks that will ul­ti­mately thrive and grow.

That’s where the real value will be.

Now that sig­nif­i­cant changes have oc­curred at the board level, we don’t see any im­passe. The Nom­i­na­tions Com­mit­tee of the board, act­ing in a de­lib­er­a­tive fash­ion re­fer­ring to ob­jec­tive cri­te­ria and ac­cord­ing to best in­ter­na­tional prac­tices, will con­duct a process to find the best CEO can­di­date avail­able. We are op­ti­mistic that the bank will choose the right per­son for the job.

John Paul­son urges banks’ man­age­ment to take de­ci­sive steps to ad­dress the chal­lenge of NPLs.

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