Is Piraeus Bank Greece’s Enron?

This week, a source has told WikiGreeks that in 2008, certain major figures in certain Greek banks that were already under distress began transferring funds off-shore into obscure vehicles with the goal of shielding them from the risk of future bank failure, and simultaneously hiding the true state of the financial institutions through structured financial arrangements.  The source compared the situation to that of Enron, because like Enron, the transactions involved sophisticated forms of structured finance involving offshore special purpose entities without real assets of their own.

Does the Greek banking sector hide its own secret Enron? Let’s look at the allegations.

Our source advises that in Athens, in 2008, the country’s fourth-largest bank, Pireaus Bank, made it possible for certain persons to move slightly less than €250 million in funds that had been in the bank offshore to a number of companies for the benefit of those persons.  Our source provided us names of these offshore entities, and even the amounts of funds transferred through them. One such company was named Hadus Ltd, which is said to have received a transfer of €30 million. Another one is Bratzano Ltd., said to have received a separate transfer of €30 million. Yet another company, Bel-Global Inc., is said to have received a third transfer of €30 million. A fourth, Nesfield SA, is said to have received yet another transfer of €30 million. Other companies, such as Stormon, Avecmac, Woodfin, were named.  Taken together, the total amount moved offshore to these entities (as well as to a dozen other companies) amounted to €247,068,485.

Our source noted that you would not find these companies listed in any company directory, because their sole purpose was to confidentially move funds out of Greece in a way to protect the interests of the persons involved. Online searches of the companies’ names do not, in fact, bear fruit.

Our source also reminded us to look closely at the relationships between Piraeus Bank and the now-defunct Proton Bank, which allegedly provided a multi-million Euro unsecured loan to an individual for the purpose of providing additional capital to Piraeus Bank a few years ago. Such a transaction, if confirmed, could raise substantial legal questions, as ordinarily, one is not permitted to borrow funds from a bank in order to create capital in another bank. The historic relationships between the two banks have been notably close. As recently as three years ago, the two banks had decided to merge, and Piraeus Bank purchased slightly more than 31.3% of Proton Bank in a stock swap.  Then, just a year later, Piraeus Bank sold all of Proton Bank back to its then owner, Lavrentis Lavrentiadis, for more than €70 million. One may wonder how Greece’s bank regulators assessed those transactions at the time, especially in light of the later discovery of alleged embezzlement of €51 million from Proton Bank not so many months later.

All of this, if the facts are born out, brings back memories of Enron. As is now well-known, Enron’s multi-billion dollar profits had for years been inflated through inflating the actual value of assets the company held, and keeping its liabilities off the books through special purpose vehicles (SPVs). The latter typically were not truly third-party entities, but stand-alone, one-transaction firms used by Enron and its bankers to transform loans, made to the SPVs, into short-term revenues, for Enron for gas futures. Enron was then supposed to repay the SPVs later, so that the loans could be repaid, after Enron actually bought the gas, or rights to gas futures, at some future date. Thus, without Enron actually owning anything, it was getting revenues from its SPVs which they paid to Enron from loans they received from banks. The protection for the banks was in the form of back-up surety bonds and guarantees from unsuspecting insurers who bought shares in syndicated guarantees.

These complexities were designed not to be readily understandable. Unless you knew that the SPV had no function except to create apparent revenues for both Enron and the banks, it was impossible to tell that all those involved were participating in a shell game to prop up Enron and create apparently risk-free profits for the banks. Instead, when the tide went out – Enron’s shareholders and employees lost everything – its executives were indicted – and its banks experienced a mix of lawsuits and losses.

We are continuing to receive, and to assess, information on off-shore transactions involving Greek banks that are at high risk of receiving government bail-outs in the days ahead, while relying on Governor Provopoulos and Craig Phillips of BlackRock to undertake the detailed analyses their responsibilities require, so that the truth, whatever it is, will come out.

http://www.wikigreeks.org/