Special report: A Greek banker’s secret property deals

By Stephen Grey/ From Reuters: Full Report  (PDF VERSION: http://link.reuters.com/nun47s )

He is the former economics professor behind an upstart bank that rode the Greek boom to become a publicly listed heavyweight with a loan book of over 35 billion euros. She is his devoted wife, who oversees the bank’s sponsorship of museums and the arts, and advised it on corporate social responsibility.

Michalis Sallas, executive chairman of Piraeus Bank, Greece‘s fourth largest, and Sophia Staikou are a Greek power couple, symbols of the fast-growth years after the country joined the euro in 2001.

But an investigation of public documents, including financial statements and property records, shows the couple may also be emblematic of the lack of transparency and weak corporate governance that have fueled Greece’s financial problems.

Greek banks will soon be recapitalized with an estimated 30 billion to 50 billion euros, part of the country’s second bailout, backed by the International Monetary Fund and European taxpayers. Analysts estimate Piraeus will take about 3 billion to 3.5 billion euros.

Sallas was put in charge of Piraeus by the government 21 years ago, before the bank was privatized. He owns about 1.5 percent of the bank, whose stock price has plunged 97 percent since its peak in 2007.

But Sallas and his wife and his two children have also run a series of private investment companies that public records show have sealed millions of euros in real estate business with Piraeus, deals that were not disclosed to shareholders.

In wealthy locations in Athens and its suburbs and on at least one Greek island, these companies bought properties with loans from Piraeus and then rented at least seven of the buildings back to the bank, which used them as branches. Piraeus also bought properties from the companies and financed other buyers to buy properties from them.

Among the most unusual deals were transactions involving companies linked to Staikou, Sallas’ children Giorgos and Myrto, as well as key former Piraeus executives. These centered on the sale to Piraeus in April 2006 of three different properties, via three different private businessmen. According to property records, each of the businessmen bought a property for a knock-down price from the family companies and then sold them on to Piraeus for more than double that price. On paper, they generated a 160 percent total cash profit for the men, nearly 6 million euros, within the space of three weeks.

According to real estate and legal experts in Athens, a pattern of quick sales is often used in complex tax avoidance schemes. Such deals are legal if all taxes were paid. But one businessman named in the sales documents told Reuters his name had been used without his knowledge. He had “never owned property in Athens in my life,” he said.

Neither Piraeus nor Sallas would answer questions about the property deals, saying they were unable to do so because of an ongoing legal case against an ex-Piraeus employee. Matthew Saltmarsh, a UK-based spokesman for the bank, told Reuters that Greek banks had become “the most thoroughly audited financial institutions in the world,” and there was no reason to question Piraeus’ governance.

But property records show the deals linked to Sallas were opaque and raise questions about how cleanly the lines between his family and Piraeus Bank were drawn. They also provide a window into some of the often byzantine money-making schemes that characterized what one Athens real-estate agent calls the “crazy times” – the years between the stock market boom in 1999 and the crash in 2009, a span that included Greece’s entry into the Euro and its hosting of the 2004 Olympics.

“It’s nothing compared to what was happening back then,” a businessman who helped run one of the Sallas’ family companies said of the property deals. “It would be unfair to limit your research to Sallas and Piraeus. Everybody in the business knows that there are other banks that used similar tricks to do much worse things than buying and selling a bank branch.”

“This period of time was a crazy party for some.”

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