IE 11 is not supported. For an optimal experience visit our site on another browser.

Clandestine loans used to fortify Greek bank

Continuing its investigation into the Greek banking system, Reuters reports that the head of one of the largest banks in Greece borrowed more than 100 million euros to buy a stake in the bank, a deal not declared to the Athens stock exchange. That raises questions about the oversight and stability of the country's financial system just as Greek banks are receiving tens of billions of euros in bailout funds from the International Monetary Fund.

Below are excerpts from Reuters reporters Stephen Grey and Nikolas Leontopoulos' story:

The loans to investors in the Piraeus rights issue highlight a bigger concern in the Greek banking sector. Piraeus issued more shares last year to strengthen its capital base, enabling it to score higher in European bank stress tests. The successful issue, Sallas said at the time, showed "a sign of confidence in Piraeus Bank, the Greek banking system and of course the prospects of the Greek economy." But Sallas did not make public the loans he and other shareholders had taken out to help make the rights issue a success.

Hans-Peter Burghof, a professor of banking and finance at the University of Hohenheim, Germany, said that billions of euros had been given to the Greek banking system without adequate supervision of the sector. "It's our money and it has been given without controls. It's a disaster," he said. If banks lent to finance each other's shares, he said, then "this way you can produce as much equity as you like and make banks as big as you like. It is not real equity." He likened it to "a kind of Ponzi scheme."

Click here to read the full story