Who will take poi­soned chal­ice?

Greece’s Hel­lenic Fi­nan­cial Sta­bil­ity Fund has been without a CEO since last July

Kathimerini English - - Focus - BY GE­ORGE GEORGIOPOULOS

Greece has­failed to find a chief ex­ec­u­tive of­fi­cer for its Hel­lenic Fi­nan­cial Sta­bil­ity Fund since its three-mem­ber ex­ec­u­tive team re­signed in July. A new CEO, of­fered the job in late Oc­to­ber, quit a week later. His pre­de­ces­sor, an in­terim boss, had lasted two months.

The fund, fi­nanced by eu­ro­zone and In­ter­na­tional Mone­tary Fund loans, has not ex­plained its fail­ure to find a new leader, but a source close to the re­cruit­ment process said the role was chal­leng­ing and “less en­tic­ing than ini­tially thought.” For­mer fund ex­ec­u­tives de­scribe it as one of the most thank­less jobs in bank­ing. One called it a “poi­soned chal­ice.”

The fail­ure to find a new CEO means the fund lacks a strong leader to push banks to make painful re­forms, such as tack­ling bad loans. Their huge bur­den of bad debt, to­tal­ing 106 billion eu­ros or about half of all loans, in­hibits them from pro­vid­ing credit to the shat­tered econ­omy’s vi­brant firms.

The CEO’s role is to use the fund’s lever­age as a ma­jor in­vestor in three of Greece’s four ma­jor listed banks to help push through bank­ing re­forms de­signed by the Euro­pean Union, Euro­pean Cen­tral Bank and IMF and to even­tu­ally di­vest its stakes, re­turn­ing banks to pri­vate hands.

The job now comes with an an­nual salary of up to 270,000 eu­ros, per­haps low by the in­ter­na­tional stan­dards of se­nior bank ex­ec­u­tives, but higher than two years ago when then-fi­nance min­is­ter Ya­nis Varo­ufakis capped it at 132,000 eu­ros.

More­over, the boss has to an­swer to sev­eral mas­ters who are cur­rently at log­ger­heads over the broader ques­tion of Greek re­forms. The gov­ern­ment, the cen­tral bank, the EU, ECB and Euro­pean Sta­bil­ity Mech­a­nism are all rep­re­sented on a six-mem­ber selec­tion panel, set up in 2010, to re­cruit fund ex­ec­u­tives.

Athens and its key lenders are at odds over the terms of the lat­est bailout. If a res­o­lu­tion can­not be found by July, Greece again may face in­sol­vency.

“At times you are the slave of 20 mas­ters,” a for­mer fund ex­ec­u­tive said, adding that it was no job for a hard-driv­ing chief ex­ec­u­tive ac­cus­tomed to push­ing through ob­sta­cles. The fund ex­ec­u­tives who dis­cussed the job with Reuters de­clined to be iden­ti­fied.

The selec­tion panel has been try­ing to re­cruit a CEO to run the HFSF since the fund’s pre­vi­ous three-mem­ber ex­ec­u­tive team was re­moved in an ef­fort to beef up lead­er­ship, which in turn was a con­di­tion of Greece’s third bailout deal with its lenders.

The source close to the selec­tion process said the panel had stud­ied more than 70 re­sumes in its lat­est search, which be­gan in late De­cem­ber, but no suit­able can­di­date emerged. The fund kicked off yet an­other search last week, ad­ver­tis­ing the job.

Ef­forts to “give the fund a stronger role through new ex­ec­u­tive lead­er­ship proved more chal­leng­ing” than en­vis­aged, the source said of the dif­fi­culty in fill­ing the va­cancy.

The HFSF em­ploys just 32 peo­ple and has total as­sets of around 8 billion eu­ros, in­clud­ing 375 mil­lion eu­ros in cash, based on Sep­tem­ber 30 bal­ance sheet data.

It owns 40 per­cent of Na­tional Bank, 26.2 per­cent of Pi­raeus Bank and 11 per­cent of Al­pha Bank, as well as a 2.4 per­cent hold­ing in Eurobank.

How­ever, the fund has lost about two-thirds of its orig­i­nal 25 billion eu­ros in­vest­ment, money Greece had bor­rowed from the EU and IMF, part of a moun­tain of debts for which Athens is now keen to get relief in ne­go­ti­a­tions with its of­fi­cial lenders.

The fund pumped the cash into banks in 2013 af­ter an over­haul of Greek debt had forced them to slash the value of their gov­ern­ment bond hold­ings. Later, they needed to raise more cap­i­tal, dra­mat­i­cally re­duc­ing the value of the fund’s stakes.

The HFSF once hoped to re­coup the money, just as Wash­ing­ton did from its bank bailouts in the 2008-09 fi­nan­cial cri­sis.

Pri­vate in­vestors who took part in the Greek bank res­cues were given “call war­rants” as sweet­en­ers, al­low­ing them to buy bank shares from the fund. That would have given the fund’s CEO an easy way to win back its 25 billion eu­ros of in­vest­ment.

But the in­stru­ments are well out-ofthe-money and due to ex­pire by yearend. In the case of Na­tional Bank, the war­rants, ex­er­cis­able in June and De­cem­ber, carry strike prices of 78.5 and 81.1 eu­ros. The bank’s shares trade at just 0.23 eu­ros.

In­stead, the new CEO is prob­a­bly go­ing to have to hang on to the stakes and claw back what­ever can be re­cov­ered of the state’s in­vest­ment the hard way, by push­ing the banks to re­form their way back to prof­itabil­ity.

“It’s safe to as­sume the war­rants will ex­pire worth­less,” said an­a­lyst Nick Kosko­le­tos at Athens-based Eurobank. “The HFSF has lost any chance of re­coup­ing the 25 billion eu­ros, given the di­lu­tions in the two rounds of re­cap­i­tal­iza­tion that fol­lowed. The sum will re­main a part of pub­lic debt.”

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