Which rights of the HFSF are abolished by the new law

By Leonidas Stergiou

The comparison of the law for the HFSF (3864/2010), with draft law submitted by the Ministry of Finance to change the operation of the Fund and extend its duration until the end of 2025, leads to three key findings:

First, simplifies its mode of operation and its possibilities of intervention. 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.

Secondly, 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.

Thirdly, its role is limited to intervening in matters of remuneration, bonuses, etc., of bank administrations only to credit institutions, whose red loans exceed 10% of total loans.

Exit plan from the banks

These are three key changes that will facilitate the exit plan of the HFSF from the 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. Thus, it 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.

Voting rights

More specifically, the Fund fully exercises the voting rights corresponding to the shares it holds, in any way, including the case of 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 no right of intervention is provided (for less than 10%).

The new article stipulates that as long as the ratio of non-performing loans to total loans and debt securities exceeds 10%, the fixed salaries of the chairman, the managing director and the other members of the board, as well as those who have the position or perform the duties of General Manager, as well as their deputies, may not exceed the total salary of the Governor of the Bank of Greece. All types of additional variable bonuses (bonuses) of the same persons are abolished throughout the period submitted to the European Commission, in the framework of the approval process of the capital assistance program, the restructuring plan of the credit institution and until its completion. Similarly, for the period of participation of the credit institution in the capital increase program, the variable remuneration can only take the form of shares or stock options.

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 has the sole responsibility of managing non-performing loans at the board level and chairs a special committee of the board that deals 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 BoD. 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.

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