Cyprus Mail

War games and the banks

By Angelos Anastasiou

IN A DRAMATIC last-minute intervention last November, reminiscent of plot twists found in Hollywood dramas, a highly profitable gaming company doled out €40 million to buy a 30 per cent ownership stake in the then-undercapitalised Hellenic Bank.

On the face of it, internet gaming companies, no matter how successful, and banks make for peculiar bed fellows.

Buying a bank is no simple task, not least because it’s an expensive sport, nor because running one is hard, tricky business.

As banks pose systemic risks to national – and even regional – economies, whoever wants to control them is heavily scrutinised, closely monitored and tightly regulated by competent authorities.

Entities buying banks typically fit a standard profile, which usually includes prior involvement in money markets or financial industries.

World of Tanks is one of's most popular games
World of Tanks is one of’s most popular games is an international online gaming developer, created by Belarus-born founder and CEO Victor Kislyi in 1998, registered and headquartered in Cyprus that has seen huge success over the years.

As suggested by its name, the publisher focuses on a series of war scenarios in which over 70 million gamers – as of 2013 – are challenged to make use of their military strategy prowess in order to progress through a series of levels.

The Massive Assault franchise was the company’s ticket to the big league, and World of Tanks heralded its entrance to the gaming elite. It currently employs over 2,000 employees globally, and 2012 profits exceeded €6 million.

“Wargaming considers Hellenic Bank a very good investment opportunity,” director Vangelis Georgiou told local press back in November, explaining that the gaming giant had been seeking a strategic partnership with a banking institution in Cyprus or abroad because its registered users pay for their gaming subscriptions through their bank accounts.

But if it had been looking to buy a bank, the world never realised.

When Wargaming made its move to enter Hellenic, the first eyebrows were raised not because of the company’s apparently dissonant area of activities, but because it was made at the eleventh hour, helping yank the lender back from the brink of nationalisation.

Earlier, an offer by American hedge fund Third Point had been made for a stake in Hellenic – €40 million for 30 per cent.

By itself, this would have significantly diluted existing shareholders’ holdings and grant the Americans major shareholder status – they would effectively run the bank. But in a surprising twist, two local entities promptly joined in to counter balance the distribution of ownership.

Demetra Investments, a local investment vehicle mostly owned by the now state-owned network of co-operative banks, offered €20 million for 15 per cent, and Wargaming put down double – matching Third Point’s offer.

All three bids were accepted by Hellenic, and the lender’s shareholding map reflected the development.

A serious investment by a foreign entity would normally be hailed as excellent news, but Cypriot media instead seemed to focus on the dilution of the Cyprus church’s stake in Hellenic. The church, previously the biggest shareholder, has long had a strong grip on the bank.

Archbishop Chrysostomos was eager to keep Hellenic Bank in Cypriot hands
Archbishop Chrysostomos was eager to keep Hellenic Bank in Cypriot hands
Following the dramatic developments, some were quick to turn their eye to Archbishop Chrysostomos, whose business prowess has often been cited as one of the reasons Hellenic never found itself in the deep, like the two major banks that had caused the banking system to implode.

It had not been in need for a government bailout, it had never tapped Central Bank-provided emergency funding, nor had its depositors been forced to participate in its recapitalisation via ‘haircuts’ or otherwise.

“Following extensive research, we have found that Hellenic Bank was the best option because it has not had to resort to the government for capital, nor seize deposits for recapitalisation,” Georgiou said. “The bank’s strong brand in the Cyprus market was considered, and we believe it has significant potential, given that its basic shareholders hold large liquidity reserves and are able to support its needs.”

Shrewd businessman and religiously prudent as he may be, Chrysostomos had also voiced another concern in the past, relating to Hellenic.

To him, it seemed that the bank remaining in “Cypriot hands” was of the utmost importance, and because it was registered in Cyprus, Wargaming could be considered a local entity.

“The church’s first and foremost concern is that Hellenic is saved, and that it remains in Cypriot hands,” he told the press a few days before the recapitalisation offers were made.

Though the archbishop seems significantly predisposed to self-aggrandising soliloquies – as in an earlier 2013 interview, when he had claimed that he single-handedly threatened Laiki Bank’s then-reigning boss Andreas Vgenopoulos away from buying up Bank of Cyprus and Hellenic Bank – the suspicion that he orchestrated counter-offers by Cypriot companies in order to neutralise a New York hedge fund from seizing control of a local bank may not be all too unlikely.

But the archbishopric’s continuing serious cash-flow problems are no secret, even alluded to by its leader himself in recent public statements.

Earlier this month, Third Point sought to tap the archbishopric’s holdings in Hellenic’s convertible bonds – approximately €24 million. Chrysostomos had no choice.

He surrendered about a third of the bonds, helping Third Point raise its stake in the lender even further.

The religious leader’s wheeling and dealing aside, a separate issue has been raised by commentators.

While Wargaming has been reported as “actively participating” in various fundraisers organised by the archbishopric, indicating at least some ties, its board of directors shares members with Demetra’s board.

The investment vehicle’s chairman, Nikos Michaelas, also sits on Wargaming’s board, while Georgiou has served on Demetra’s board. This, commentators argue, could be an indicator that the two entities’ decision to enter Hellenic may not have been made independently and on purely financial grounds.

The decision to appoint chartered accountant Irena Georgiades – former senior aide to Finance Minister Harris Georgiades since his days as a deputy, until her appointment as Public Service Reform Commissioner a couple of months earlier – at the bank’s helm raised suspicions of political entanglements.

Opposition parties voiced concern over her political past at the finance minister’s side, implying insider knowledge and influence. It is rumoured that Georgiades was Wargaming’s pick, with all other key players giving the nod, but all appointments to the board had to be approved by the Central Bank.

In a news conference on Wednesday, Central Bank governor Chrystalla Georghadji confirmed that the vetting process on Hellenic’s new board had been completed and decisions were taken, declining to reveal what they were until “interested parties” had been notified.

In the meantime, Wargaming is one of the very few organisations in Cyprus that has defied the economic downturn, increasing its operations and hiring staff throughout the crisis period. It has recently also acquired and moved into brand new – and impressively futuristic – office space in Nicosia.

“This is a Cypriot company, with presence in 17 countries,” Georgiou said. “Following March 15 [of 2013] we did not reduce our presence, but further expanded our activities and hired new staff.”

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