Saturday, September 25, 2010

Meet the 300 Billion Euro Man

Friday morning, I met up with Petros Christodoulou, the man Spiegel International dubbed "Greece's savior" in an article which appeared in late March, The 300 Billion Euro Man:

It is the most thankless job that exists in Greece these days: Petros Christodoulou, the new head of the Public Debt Management Agency, in Athens, has been tasked with guiding his country out of debt. He has already charted his course on the 300 billion euro voyage and says "there's no room for emotion."

When Petros Christodoulou sits at his desk, his gaze inevitably falls on a relic of better days. To him, it must feel like a reminder of a laudable achievement gone wrong -- and a warning. A neatly framed certificate perched on the windowsill across the room reads: "Best Government Borrower." It was an award bestowed upon the Athens government in 2007 by the British financial newspaper EuroWeek.

Back then, taking on debt in Athens was more of a straightforward affair. These days, though, the entire world is looking to Greece and wondering how the country will clean up its budget and avoid a national bankruptcy.

Even if Greece is unable to increase its revenues significantly, it is Christodoulou's job to procure favorable loans in the financial markets so that Athens can at least pay off its old debts with new debt. This, in turn, is meant to placate Greece's creditors, help the country get over its financial crisis and stabilize Europe's common currency, the euro.

Just one month ago, Prime Minister Georgios Papandreou, 57, appointed the former investment banker to serve as Greece's highest-ranking debt manager, as general director of the Public Debt Management Agency (PDMA). It is a dubious honor, given that the country owes €300 billion ($404 billion) and is paying interest rates on government bonds that are up to 3 percent higher than the rates paid by Germany. His predecessor issued an €8 billion bond offering in January, but the price began plunging on the first day of trading. It was a debacle for Greece.

'Admittedly Difficult Situation'

Nevertheless, Christodoulou didn't hesitate for a second. "You don't necessarily wait for an offer like this," says the financial manager, "but there are moments in your career when you just have to clench your teeth and get down to business." Now he intends to use his skills to help lead his country "out of an admittedly difficult situation."

Those skills must be extraordinary, if one is to believe the early praise in the capital. Christodoulou, who studied finance in Athens and at New York's Columbia University, held senior executive positions with several major financial institutions, including Credit Suisse, Goldman Sachs, JP Morgan and, most recently, the National Bank of Greece, before being chosen as his country's financial savior. "I climbed high and was dropped off with a parachute over unknown terrain," he says.

The PDMA's "front office," as Christodoulou calls it, doesn't exactly look like the nerve center of a campaign to prepare for the final battle against looming bankruptcy. The hallway, painted in Greece's national colors of blue and white, is quiet. The desks seem oddly neat and many chairs are empty.

With his staff of 20, Christodoulou, 49, must decide which bonds to place and where they will be placed, the size of the offering and the terms and conditions. "My life is dictated by the financial markets," he says. "I'm here when something new happens, and I'm here when someone has an idea, morning, noon and night. I exchange e-mails with the finance minister at one in the morning."

Not a Time for Weakness

His carefully ironed white shirt belies his busy schedule as he sits at his desk in shirtsleeves. Given all of his newfound responsibility, does he have trouble sleeping? Christodoulou, usually quick to respond, pauses for a few moments. Then he says, absent-mindedly: "I believe it's doable, and that's why I'm here. There is no room for emotion."

His biggest challenge at the moment is to raise about €11 billion by the end of May to pay debts that will mature by then. At the beginning of the week, that number was much higher, but a successful bond issue on Monday brought in a much-needed €5 billion. The offering follows an equally successful bond issue on March 3, which likewise brought in €5 billion. Nevertheless, by the end of the year, he must rustle up over €20 billion more.

In April, he and his team will embark on a "road show" in the United States and Asia. "We have a story to tell," he says. The story is about a Greece that will successfully complete its difficult journey and will then offer good investment opportunities -- opportunities, he says, that international investors cannot afford to ignore. In fact, says Christodoulou, Greece is already paying such attractive yields to offset a higher risk that no international investor can "afford not to be in on the deal." He is targeting the booming financial centers in Southeast Asia and in emerging economies, in particular.

Going for the Jugular

Christodoulou makes decisions quickly and purposefully. He thinks patriotically and acts globally. "We all need luck," he says, and adds: "I also go to church." He pauses and laughs again: "I need all the strength I can get."

The US business magazine Forbes estimates that he earned an annual salary of about €300,000 in his last bank job, but his current pay is likely considerably lower. "I don't remember," he says, smiling thinly -- no comment, in other words.

Instead, he prefers to emphasize the selfless nature of his current task. "One thing is certain," he says. "I'm not a politician, and I'm not planning a political career."

Mr. Christodoulou is definetely not a politician. From the moment I walked into his office, I could tell he's a market guy, fixated on his Bloomberg screen, looking at bond spreads. He reminded me of the many European hedge fund managers I used to meet when I worked at the Caisse allocating money. Smart, very polished, excellent conversationalist (fluent in English), and a bit arrogant, which comes with the territory (in Greece you have to be arrogant when you reach a certain status or else people don't respect you, but I found him very friendly and we chatted for nearly an hour and a half).

I had sent him a few questions from large pension funds and made it clear that I'm not working for them or representing them, nor are they particularly keen on investing in Greek bonds. They just wanted to know how Greece is coping with austerity measures and how they will service their debt going forward.

Mr. Christodoulou told me, "I don't respond to bloggers, and I don't normally meet them" but he was kind enough to meet me and we exchanged information. The first thing he did was jot down on a piece of paper the rough breakdown Greece's debt: 70 billion euros is held internally, 70 billion by France, 50 billion by Germany, 40 billion by the ECB and 50 billion Other Eurozone nations.

"The bulk of our debt is held within Europe which is why I focus much of my attention here", adding "we have to first service those who invested in our debt." Of course, that's understandable, as Europe stands to lose the most if Greece defaults or restructures its debt.

On the "R" word, Mr. Christodoulou made it clear that restructuring is not an option. "It's not just me saying it, our Prime Minister, Finance Minister, Trichet and others have said it". I told him the ripple effects would be too big. He agreed, stating "You can't just look at Greece on its own. There is too much at stake for European and international capital markets if Greece restructures. The cost of restructuring is unbearable".

On the austerity measures, I told him many market analysts are skeptical that Greece can come out of this mess. He handed me a WSJ article, Why Sovereign Debt Default Remains on the Table, and told me that Greece just underwent "shock treatment with a capital S". He added: "you know well that Greeks have to be lying on the floor before they accept drastic changes". I know that all too well, remembering the criticism Greece received prior to the 2004 Olympic games, which in the end, turned out to be one of the best Olympics ever (post-Olympics, however, things soured as they didn't have a plan on how to use the buildings they built).

I asked him specific questions on why Greece wasn't paying the VAT tax credit to foreign investors and why they're not going after tax evaders more forcibly. "We are going after tax evaders and accelerating pending court cases. There is no choice. If we don't raise tax revenues in the next four months, we can't cut more costs as patience is wearing thin among Greeks." On the VAT tax credit, he told me "when you're cash strapped, you have to make difficult decisions, and that is unfortunate, but we're working to rectify this as soon as possible."

We also chatted about his experience. Interestingly, Mr. Christodoulou knew a lot about Canada and lived in Toronto and Montreal. After graduating with an MBA from Columbia, he worked at the treasury department at Fednav Group, and in Toronto, he spent a couple of years trading provincial debt at Goldman Sachs. "But the winters were too cold, so I left Canada and went over to London to work at JP Morgan as a bond trader where I stayed 12 years before moving back to Athens."

(Interestingly, when discussing blogs and bloggers, he became irate over those who accuse him of being a "Goldman puppet", calling them "dumb (expletive)", and told me "who would you rather have running this agency some Greek pension manager who doesn't know the first thing about capital markets?" Good point, most of those guys are political hacks who are completely incompetent and totally corrupt.)

Amazingly, he recalled exactly where he lived in Montreal, "on the corner of Guy and Sherbrooke" and when I told him one of my favorite Greek restaurants, Molivos, was there, he said "yes, it's on the south west corner". Pretty good memory.

He also told me his cousin, a social worker, lives in Montreal, and his uncle, John Christodoulou is the Chairman and CEO of Guardian Capital Group in Toronto (I knew the name rang a bell as his uncle is one of the most successful Greek Canadian businessmen). "My uncle has been trying to bring me back to Canada", he joked.

We ended our conversation by talking about Greek "diaspora" bonds which are bonds they are going to issue to Greeks living abroad. He told me they're thinking of issuing 1-year and 3-year paper, and asked me where 10-year bonds were trading in Canada. My brain was fried from my vacation, so I couldn't tell him exactly off the top of my head, but he checked his Bloomberg and told me 3%.

(I am not sure how successful Greek diaspora bonds will be given that many Greeks in Canada and elsewhere got burned in the Greek stock market bubble back in 1999 and are generally weary of Greek investments. But if they can get extra yield on relatively safe government paper, I think many will consider it, and not just out of patriotism to the Motherland).

As I left his office, he told me that he invites my readers to go directly to the Greek Public Debt Management Agency website where they can view the latest presentations. He also told me he will be planning a North America roadshow at a later date and is happy to respond to any questions from fund managers directly (just send them to pdma@pdma.gr).

I would like to thank Mr. Christodoulou for taking the time to meet me and share his thoughts on the Greek economy. Along with the Prime Minister and Finance Minister, he's got one of the toughest jobs in Greece, but he's more than qualified to handle the challenges that lie ahead.

Finally, Greece’s Prime Minister George Papandreou recently spoke with Bloomberg's Betty Liu about the country's economy and sovereign debt crisis. Papandreou says Greece ruled out any plans to restructure debt and repeated that the country plans to return international capital markets as soon as possible.

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