International Banking gone wrong!

The fall of the Piraeus Bank sounds like a fictional story, however sadly it is not fiction. It appears that the stage was set for a severe banking crisis a few years back with the economic collapse of the Republic of Cyprus in 2012. This crisis was the precursor to the demise of the Piraeus Bank, and what followed was widespread panic.

As far back as October, 2015, Piraeus Bank customer deposits totaled approximately 34.5 billion euros, and it seemed the bank had a strong financial structure (Zikakou).

However now, in the light of what has happened, it has been determined that the bank did not bother to admit that these customer deposits were tied up in large unsecured loans and investments, and were very high risk. Confirmed reports are that the clients of the Cypriot banks lost close to three billion euros, (most of which came from the seizure of said uninsured bank deposits) which a Greek bank then received as profit. Hundreds of Cypriots have appealed to the European Court of Justice, and the Central Bank of Cyprus intends to launch an investigation (“Thepressproject”).

This past July 2016 Piraeus Bank Chairman Michalis Sallas announced his intention to step down.  (“Piraeus Bank Chairman Michalis Sallas Said To Be Stepping Down | Kathimerini”).  Similarly the chief executive of Piraeus Bank was also asked by the government to leave his seat as the bank was in a shambles and had become the weakest of the big four banks of Greece.

The nearly bankrupt Piraeus bank was also involved in buying Cyprus’s two largest banks at rock bottom prices because of the PIMCO report. Beyond the conspiracy theories and calumny, PIMCO gave in to the pressure by the IMF, the European central bank and the European commission to declare that the major banks of Cyprus were in a deteriorating state. The result was many depositors lost their life savings and suffered from mental and financial setbacks.

A special report was headlined IN Reuters “A Greek banker’s secret property deals” and was issued in April, 2006 (link.reuters.com/nun47s). In this report it was claimed that Piraeus Bank loans had purchased several properties and these properties were owned by different private investment companies.  Further investigations found these properties were directed by the children and the wife of the chairman of Piraeus Bank, Michalis Sallas.

In March 2013, Piraeus bank sued Reuters for damages of 50 million euros for publishing the story that accused the Sallas family of wrongdoing. In the lawsuit, Reuters was accused of malicious defamation with intentions to harm the Greek banking system. According to the global head of communication of Reuters, Barb Burg; the case was dismissed by the court on grounds of a technicality. The bank was unable to prove its case that the article issued by Reuters contained any false information or negative intentions to hamper the banking system, and was dismissed.

Hundreds of lawsuits are already in place against the Piraeus Bank due to the way the restructuring is being handled, and we have never seen a messier or more confusing situation. The resulting confusion has created delays and increased local and international litigation claims creating ever greater uncertainty. It is still a wait and see situation.