MercoPress. South Atlantic News Agency

EC considering major shake-up in scandal-ridden bailed-out Greek bank

Michael Sallas took loans of more than 100 million Euros from the Piraeus bank to secretly buy shares

Banks recapitalised as part of Greece's bailout may be forced to overhaul their management and governance, the European Commission said, in response to questions raised by Reuters agency about alleged malpractice at Greece's fourth-largest bank.

In a statement, the European Union's executive arm said Greek banks would face due-diligence audits and possible management shake-ups in return for their share of billions of Euros from the region's taxpayers and the International Monetary Fund.

“The recapitalisation process will entail a significant revamp of corporate governance structures and management practices in banks where malpractice has occurred,” said Antoine Colombani, the Commission's spokesman on competition and antitrust issues.

The Commission was responding to a Reuters article of July 16 which reported that the chairman of Piraeus Bank, Michael Sallas, and his children had taken out loans of more than 100 million Euros to secretly buy shares representing an undeclared family stake in the bank of more than 6%.

The purchases, conducted as part of an 800-million-Euro Piraeus rights issue in January 2011 designed to strengthen the bank's capital base, were made via offshore companies owned by Sallas and his two children, according to audit documents seen by Reuters. The transactions were not declared to the Athens Stock Exchange by the bank.

The evidence of secretive self-purchasing of bank stock with borrowed money has raised questions about corporate oversight, especially at a time when European taxpayers and the International Monetary Fund have committed 48 billion Euros to bailing out Greece's banks, including Piraeus.

In a series of articles about alleged mismanagement at three Greek banks, Reuters also reported in April that Piraeus had not disclosed it had rented properties from private companies run by the Sallas family. The bank has sued Reuters for defamation over the story, claiming 50 million Euros in damages.

In a written response to questions, the European Commission, the EU executive and a party to Greece's 130-billion-Euro bailout, said it was following the issue in conjunction with Greek authorities.