Bankers’ bonuses are cut until 2023

By Leonidas Stergiou

Simplification of the mode of operation, full disinvestment until 2025 by the participating banks and restriction of the rights are the three major changes included in the new law on the Financial Stability Fund, which was submitted to the Parliament for a vote by the Ministry of Finance.

In the submitted plan was added the clarification regarding the salaries and the distribution of bonuses (dividends, stock options, other earnings besides the fixed ones, etc.) to the bankers, as previously announced by the Chief Financial Advisor of the Prime Minister, Mr. Alexis Patelis.

The draft law stipulates that bonuses are not allowed until the financial year 2022, for the credit institutions in which it participates, regardless of whether the criterion for lifting the veto by the HFSF has been met. Also, until then, the salaries of bankers can not exceed the salary of the Governor of the Bank of Greece. The HFSF right to veto is abolished if the banking institution reduces the percentage of red loans below 10%.

Exit plan from the banks

The bill also includes three key changes that will facilitate the HFSF’s exit plan from banks by the end of 2025, but at the same time secure the Fund insofar as it has invested funds to support the banking system. It may take part in capital increases and may hold shares held at an even lower price than the acquisition price, if this is justified by the divestment report.

This practically means that by the end of 2025, the HFSF should have zeroed its holdings by the National Bank (40.3%), Piraeus Bank (27.3%), Alpha Bank (9%), Eurobank (1 , 4%) and Attica Bank (62.93%). Already, Attica Bank’s capital increase to increase Ellington’s shareholding and private equity to the current HFSF rate has already been delayed (expected in May, now estimated for June or later).

The draft law expands the scope of voting rights as a private shareholder, for every issue in the general meetings, from capital increases to acquisitions and mergers. However, the possibilities are limited to the percentage of shares it holds, as is the case for each shareholder. On the other hand, the bill also gives a time horizon for the completion of the divestment. It gives more flexibility and provides independent consultants, valuations and strategic plans, as well as a time limit for their completion.

According to the draft law, the HFSF will be able to dispose of its shares in credit institutions in parts or in a lump sum, based on a strategic plan which will be prepared by a special advisor and approved by the Ministry of Finance. The distribution of the shares will be done through a book of offers, the offering price and the minimum coverage percentage will be determined by the HFSF Board of Directors, based on the valuation report of the offering consultant. At the same time, there is an obligation for an additional opinion / report of another independent financial advisor, with prestige and international experience in valuing credit institutions.

In case of sale of share packages by the Fund, the Minister of Finance receives the relevant reports and valuations and has the right of veto, if the proposed offering price is outside the range of these valuations. The sale of shares is not allowed to companies or organizations that may be directly or indirectly affiliated with the public.

The procedure is similar in case the Fund takes part in a capital increase of a credit institution. However, the capital increase should not be done for reasons of consolidation. The financing of the coverage and withdrawal of new shares or other property securities is done exclusively from the Fund’s cash or from the reinvestment of amounts that arose after a previous disposal of assets.

The other changes

First, its mode of operation and its possibilities of intervention are simplified. Generally, voting rights are limited to the percentage of shares it holds. With these rights it has the same possibilities of intervention as any shareholder, depending on its percentages and the relevant legislation. In other words, there are no restrictions and exceptions specifically for the HFSF regarding the exercise of voting rights in the general meetings of banks.

Second, the role of the HFSF to convene general meetings, to evaluate and to set evaluation criteria for the members of the boards of directors and the committees of the banks in which it participates is abolished.

Voting rights

The Fund fully exercises the voting rights corresponding to the shares it holds, in any way, including the case of the capital increase. This wording extends the exercise of the Fund’s voting rights, which are no longer limited to specific issues set out in the original law, such as statutory amendments, capital increases or reductions, acquisitions, mergers, sales of subsidiaries, or when the HFSF General Board finds that substantial obligations of the credit institution provided for in the restructuring plan are being breached, or any other matter requiring an increased majority. Also, now, with the proposed bill, another provision does not make sense, which provided that any distribution of shares from the Fund to private investors will lead to a reduction of voting rights on the shares it holds.

Abolition of special rights (veto)

The Fund’s representative on the board no longer has the right to:

a) To request the convening of the General Meeting of Shareholders.

b) Virtue (veto) in making any decision of the Board of Directors of the credit institution in cases such as business strategy, asset management, etc.

e) To approve the Financial Director of the credit institution. In exercising his rights, the Fund’s representative on the Board of Directors takes into account the business autonomy of the credit institution.

Evaluation of administrations

The provisions concerning the evaluation of the members of the board of directors and its committees by the Financial Stability Fund are abolished, taking under the corporate governance, the size, the structure and the distribution of the responsibilities of the members of the board of directors. etc. Also, the establishment of evaluation criteria for the members of the board is abolished. banks (including non-executive ones), as well as its ability to request changes.

The provisions with the rights for the evaluation of administrations, salaries, bonuses, etc. are replaced by a new article that defines when and for what issues it intervenes. The Fund can only intervene for as long as the credit institution in which it participates has a red loan ratio of more than 10%. Otherwise there is no right to intervene (for less than 10%), other than the financial year 2022 for bonuses and earnings.

Abolition of evaluation criteria

In this context, the criteria for the members of the Board of Directors and the committees who had at least 10 years of experience in senior management positions in the fields of banking, auditing, risk management or management of doubtful assets are removed, of which, especially for non-executive members, 3 years as a member of the Board of Directors in a credit institution or business of the financial sector or in an international financial institution.

The evaluation of the structure and composition of the boards, which provided the following criteria, is abolished: a) The Board of Directors of the credit institution includes at least 3 experts as independent non-executive members with sufficient knowledge and international experience of at least 15 years in respective financial institutions, for at least 3 years as members of an international banking group that is not active in the Greek market. These members must not have had any relationship with credit institutions operating in Greece during the previous ten 10 years.

The criteria for independent non-executive members are also abolished. It is reminded that the current law stipulates that at least 1 member of the board of directors must have relevant specialization and at least 5 years of international experience in risk management or the management of non-performing loans. This member focuses on and has as its sole responsibility the management of non-performing loans at the level of the Board of Directors and chairs a special committee of the Board of Directors dealing with non-performing loans.

These amendments abolish the right of the HFSF to request changes in the management of banks, as provided by the current framework, in case it considered that, for example, the members of the board. did not meet the evaluation criteria or the composition and structure of the board. did not reflect the size and needs of the credit institution etc.

Finally, the provision stipulating that the HFSF facilitates the management of non-performing loans of credit institutions is repealed.

Restrictions on BoDs of banks

However, the following limitations remain:

(a) Each member must not hold, nor have he / she been assigned, in the last 4 years prior to his / her appointment, a significant public office, such as Head of State or Prime Minister, senior political official, senior government, judicial or military official; or an important position as a senior executive in a public enterprise or a political party executive.

(b) Each member must declare all financial connections with the credit institution prior to his / her appointment. The competent authority must have confirmed its ability and suitability for the position, where provided. In addition, any conviction or prosecution by an irrevocable panel for offenses related to financial crime is a reason for termination of the term of office of the member.

Attached file: The Draft Law on the HFSF submitted to Parliament