By Poly Pantelides
Former Laiki brass was very keen to bring in Marfin Financial Group to Cyprus, a former Central Bank (CBC) governor said on Friday, as banking giant HSBC decided to dispose of its share in the now-defunct lender after failure to acquire a controlling stake.
Christodoulos Christodoulou, who was CB governor between 2002 and 2007, said former CEO Michalis Erotokritos and Marfin strongman Andreas Vgenopoulos displayed “euphoria and enthusiasm” in an early February 2006 meeting at his office to discuss Laiki. This enthusiasm was shared by former Laiki chairman Kikis Lazarides, Christodoulou said.
The meeting took place a few days after a February 3 Laiki announcement that major shareholder HSBC had agreed to dispose its 21.6 per cent stake.
Christodoulou was testifying at an inquiry on events concerning the island’s near-financial meltdown in the run-up to an international bailout in March.
Part of the investigation relates to Laiki, which Cyprus had to shut down in March as part of a bailout deal.
Most of HSBC’s stake was bought by Marfin Financial Group Holdings (9.98 per cent) and Tosca Fund (8.18 per cent).
The official who advised the Central Bank to okay Marfin’s request to increase its Laiki’s shares, Spyros Stavrinakis, previously told the committee that the relationship between Marfin and Tosca Fund – which was within Vgenopoulos’ sphere of influence – became known only after the fact but did not clarify when.
The acquisitions stood below the 10 per cent threshold and no Central Bank approval was necessary, Christodoulou said calling the move “crafty and masterful”.
At the time, Christodoulou was aware of speculation that Tosca Fund and Marfin were related to Vgenopoulos, which both Vgenopoulos and Erotokritos denied.
The pair went on to express their intention for Marfin to increase its stake to beyond 10 per cent.
“I would say there was euphoria and enthusiasm” over Marfin, Christodoulou said.
In the previous year, on June 2005, HSBC group chief executive Michael Geoghegan asked to meet Christodoulou to express their intention to either acquire over 50 per cent of Laiki or else dispose of what they held.
Geoghegan said HSBC was “frustrated” with their shareholding which did not allow them to have an “effective and helpful” presence in Laiki, Christodoulou said.
Christodoulou said he did not know why HSBC and Laiki negotiations fell through but said there was a suggestion by HSBC they had disagreed on the acquisition price.
But he said that Lazarides and Laiki brass were very keen on Marfin, though he conceded that had HSBC remained then “perhaps there would still be a Laiki Bank today”.
Christodoulou went on to approve in early June 2006, Marfin’s acquisition of over 10 per cent in Laiki, despite caveats by the bank supervision department in relation to the incompleteness of information on a major Marfin shareholder, and a history of Marfin’s violations of Greece’s securities and exchange commission’s (SEC) regulations.
Even after the approval, Christodoulou wrote to Vgenopoulos in late June 2006 to inform him there were unconfirmed reports of collusion between Tosca Fund and Marfin which they were investigating.
Christodoulou warned Laiki he might withdraw his permission for Marfin’s involvement in Laiki.
But Christodoulou said there was “no confirmation” of what was “only rumours” about Marfin and Tosca Fund.
The former governor also informed Vgenopoulos at the time that they were being investigated by Cyprus’ SEC for transactions during a closed period.
On July 18, 2006, Cyprus’ SEC fined Vgenopoulos and others 40,000 Cyprus pounds each for selling company shares “during a prohibited period without securing the necessary permit”.
A few months later, in November, Christodoulou’s son-in-law at the time, was offered an attractive job in Laiki for which he would answer directly to Vgenopoulos.
Christodoulou said nothing was amiss in the deal, citing a comparable job offer by Bank of Cyprus CEO Andreas Eliades.
His former son-in-law – who accepted the Laiki job – did inform him of the job offers “thinking I should be aware of this because of my position” but Christodoulou said he was “not involved”.
Under the helm of Vgenopoulos, Laiki went on to complete a merger in 2009 with Marfin Egnatia bank in Greece, proclaiming a new era of expansion and growth for the bank.
The Vgenopoulos-controlled Marfin Investment Group (MIG) is now under investigation in relation to loan agreements between Laiki and MIG that were secured using MIG shares as collateral, while a Nicosia court has frozen Vgenopoulos’ assets and has banned MIG from making any transfers to his benefit.
Laiki’s expansion policy landed it with huge losses from a 2011 write-down of Greek government debt, which led it to seek state assistance in 2012. It was eventually decided to shut it down as part of the island’s bailout deal but only after it had amassed over €9.0 billion in emergency liquidity assistance.
Financial authorities are investigating a transfer of some €1.0million in 2007 from a Greek ship owner’s account to that of a company that was headed at the time by Christodoulou’s daughter. Christodoulou has said there was “nothing wrong or illegal” with the transfer.