JP Morgan Greek Tragedy sets ‘hero’ banker against old bosses
Friday, 2 November 2007
Maria Petrakis, Gavin Finch and Michael Janofsky
Mike Savvides was a rising star at JPMorgan Chase & Co., or so he thought.
Promoted to executive director in January and sent to run the bank's office in Greece, he found himself unemployed four months later as the central figure in a scandal that prompted protest strikes and demonstrations in Athens, and cost the country's labour minister his job.
Savvides, 36, Athens-born, British educated, and the father of two young children, is suing JPMorgan, the third-largest U.S. bank, for wrongful dismissal and defamation of character over his role in a February bond sale. The dispute turns on just how much his former bosses knew about a deal that almost cost Greek pension funds 20 million euros ($29 million).
``Up until all this blew up, I thought my career was going great,'' Savvides said in a set of interviews in which he accused his former bosses of making him a scapegoat. ``Everything was going brilliantly. Then they sacked me. It's been a real roller coaster ride.''
Michael Golden, a spokesman for JPMorgan in London, described Savvides's allegations against the bank as ``without merit.'' He declined to respond to any of Savvides's assertions, including his recollections of conversations with JPMorgan executives, nor would he make any executives available for interviews.
Golden said the bank stands by its only public statement in the matter, which said Savvides was dismissed for failing to promptly disclose all aspects of the sale to his superiors.
Savvides is now awaiting his day in court. That may be as long as two years away, and the trial itself may take four years, according to Stylianos Vlastos, an Athens lawyer who isn't involved in the case.
Events leading to the lawsuit, which isn't a public document, offer a glimpse into the inner workings of a major bank. Since 2005, Greece has sold more than 1.5 billion euros of bonds like those bought by the pension funds, according to Bloomberg data.
At issue is exactly who at JPMorgan knew what would happen after the 280 million euros in government bonds were sold by the bank to North Asset Management LLP, a London-based hedge fund, at a price of 92.95 cents on the euro.
JPMorgan, which bought the bonds from Greece at 100 cents on the euro, was more than compensated for its 19.74 million euro loss on the sale by a gain from a corresponding deal with the Greek government, according to a person familiar with the details.
Under the terms of the bond sale, JPMorgan and the government entered into a so-called swap transaction, an agreement to exchange fixed-rate payments for ones based on floating rates.
The same day it bought the bonds, North Asset sold them to HypoVereinsbank, part of UniCredit SpA's HVB Group, for 99.9 cents, which in turn sold them at 99.95 cents, according to a statement from the unit of Milan-based UniCredit. The buyer, Athens brokerage Acropolis Axepey, said in a statement that it then sold the bonds to four Greek state-run pension funds at 100 cents on the euro.
The transactions caused a furor in Greece, where lawmakers demanded in a statement that JPMorgan explain ``how multiple transactions within the same day to get the bond to the pension funds are compatible with business ethics.'' Socialist opposition leader George Papandreou accused the government, JPMorgan, North Asset Management and Acropolis Axepey of selling the bonds at above-market prices.
Prime Minister Kostas Karamanlis fired Labor Minister Savvas Tsitouridis, unions held a one-day protest strike, and the government overhauled management of pension funds and began a review of their investments over the past nine years.
To smooth relations with the government, JPMorgan and North Asset agreed to buy back the bonds from the pension funds at face value, with the U.S. bank paying an additional, undisclosed amount in interest, according to an Aug. 22 statement by Greek Economy Minister George Alogoskoufis and Labor Minister Vassilis Magginas.
C. Kerry Fields, a professor of business law at the University of Southern California's Marshall School of Business in Los Angeles, said JPMorgan appears to have acted lawfully in its handling of the sale to North Asset Management and bears no responsibility for what happened later.
``The foolish people are the buyers because they paid so much,'' Fields said.
Board members of Greek pension funds are appointed by the government, labor unions and employers, often on a part-time basis, without specific professional or educational qualifications. The country has about 200 pension funds with assets of more than $44 billion, according to finance ministry estimates.
Savvides's boss, Alessandro Barnaba, wrote to Peter G. Doukas, Greece's deputy minister of finance, on March 28 that the bonds were sold to North Asset on a ``buy and hold'' basis. ``Buy and hold'' means that the acquirer plans to retain the assets and not sell them. Barnaba, whose letter was posted on the Greek finance ministry's Web site, was one of the executives whom JPMorgan declined to make available for an interview.
In a May statement, North Asset said JPMorgan knew ``at the highest level'' that the bonds would be sold again. The following month, Louis Plowden-Wardlaw, a managing director of the hedge fund, told the Greek parliament's standing committee on economic affairs that his company had never said it would be a buy and hold investor.
``I don't know who knew or didn't know at JPMorgan, but someone knew it,'' Plowden-Wardlaw said.
Jakob Stott, JPMorgan's chief operating officer for Europe, told the same committee that Barnaba's explanation in the letter to Doukas had been incorrect.
Identifying Savvides as a ``member of the core deal team,'' Stott said Savvides was fired for his ``failure to promptly share his knowledge of aspects of the structured bond transaction during the internal review process.''
A lie, said Savvides, who was head of derivatives sales for Greece and Cyprus. He said in interviews that senior executives at JPMorgan always knew North Asset intended to resell the bonds, charging that he was fired so they could save face with the Greeks and preserve future business.
``During the whole transaction, everyone knew that North was going to on-sell the bonds,'' Savvides said.
Stott was among the executives whom JPMorgan declined to make available for an interview.
For now, Savvides, who worked at Deutsche Bank AG, Investment Bank of Greece SA and EFG Eurobank Ergasias SA before joining JPMorgan in late 2005, is struggling to put his career back together.
``JPMorgan hired me because I had a really good reputation in the market,'' he said. ``Now look at it.''
A graduate of the Ziridis School of Athens, one of the oldest private schools in Greece, Savvides continued his education at Imperial College London, where he studied aeronautical engineering. In 1996, he wrote a thesis entitled, ``Application of Two-dimensional spectral/finite-difference and spectral/hp finite-element methods to cylinder flows.''
About a year after joining JPMorgan, he was asked to pitch deal ideas to North Asset, Savvides said. He proposed the structured bond, JPMorgan's first for the Greek government. Structured bonds are typically those linked to some form of derivative; this is designed to enhance return without affecting the bond's principal.
The transaction seemed simple enough, selling bonds to a hedge fund that specialized in emerging markets, mainly in eastern Europe.
Over the next few months, JPMorgan negotiated terms of the sale with the Greek government and North Asset. Savvides said that Barnaba, and North Asset's managing director, George Papamarkakis, were communicating ``constantly.''
The sale to North Asset was completed in February.
``How can Barnaba say after four months of negotiations that he wasn't sure that North Asset was going to sell the bond on?'' Savvides said. ``It's ridiculous. I didn't even have the authorization to get this deal done on my own. Of course my managers knew everything about what was going on.''
Papamarkakis declined to comment.
Savvides said that when he went to London at the end of February, he was praised as ``hero of the week'' for helping the bank put together its first structured bond for the Greek government.
Within days, the deal started to turn sour. On March 1, Greece's securities regulator suspended Acropolis from some services for inflicting ``significant losses'' on a client it didn't identify. The next day Labor Minister Tsitouridis said prosecutors and a special government auditor were looking into Acropolis's transactions with a pension fund that was one of the four that had bought the bonds.
On March 13, the labor ministry imposed stricter rules on funds. Then, on March 15, two Athens newspapers, Kathimerini and To Vima, said four pension funds paid excessive prices and fees to buy a ``secret'' 280 million euro government bond through Acropolis. The following month, Acropolis lost its brokerage license after an audit revealed the company had sold government bonds to pension funds at inflated prices in 2002 and 2003.
Savvides said his impression of his superiors' reaction to the newspaper accounts was that any questions the reports raised would ``fade away within days.''
They didn't.
The Greek authorities called him to talk about the bond, leading to a five-hour interview on April 2. Describing the questions as ``descriptive initially,'' Savvides said the prosecutor never asked him whether JPMorgan executives knew North Asset intended to sell the bond.
Nor did he bring it up, he said.
The next day, in London, in his first meeting with the bank's legal and compliance department, Savvides was asked if he knew that North Asset intended to sell the bonds, Savvides said. He told them he wasn't sure.
``I was trying to protect my managers,'' he said. ``I thought they would protect me. I followed Barnaba's line as laid out in his letter to Doukas.''
Harry Adamopoulos, a JPMorgan managing director in London who was responsible for Greece, had told him ``to take the line that this was a buy and hold bond,'' Savvides said.
Savvides said he worried that Papamarkakis might tell the Greek authorities that he, Papamarkakis, had told the bank North Asset intended to sell the bond.
Adamopoulos told him, ``Let Papamarkakis say whatever he wants,'' Savvides said. The bank declined to make Adamopoulos available to comment on Savvides's account.
To this point, Savvides said, he never expected that he might get entangled in conflicting stories. Then, he bumped into Andrea Vella, a JPMorgan executive who dealt in derivatives. He recalled Vella telling him, ``These guys are always looking for a culprit, but don't worry, we like you.''
Vella has since left JPMorgan and couldn't be located.
The next day, Savvides said, he was told that he should take a few days off.
``I was a little worried by this,'' said Savvides, who lives in Drosia, a suburb of luxury villas and apartment complexes 12 miles (20 kilometers) north of Athens. ``But I was stressed. I was going away for Easter with my family anyway.''
On April 11, JPMorgan suspended Savvides, pending further investigation. He was summoned to London on May 3 for another meeting, where he said Tony Best, JPMorgan's European head of derivatives sales and marketing, told him, ``You weren't cooperative during the initial stages of the review.'' The bank declined to make Best available for comment.
With that, Savvides was fired.
Three months later, he filed suit against JPMorgan.
Bloomberg
Mike Savvides was a rising star at JPMorgan Chase & Co., or so he thought.
Promoted to executive director in January and sent to run the bank's office in Greece, he found himself unemployed four months later as the central figure in a scandal that prompted protest strikes and demonstrations in Athens, and cost the country's labour minister his job.
Savvides, 36, Athens-born, British educated, and the father of two young children, is suing JPMorgan, the third-largest U.S. bank, for wrongful dismissal and defamation of character over his role in a February bond sale. The dispute turns on just how much his former bosses knew about a deal that almost cost Greek pension funds 20 million euros ($29 million).
``Up until all this blew up, I thought my career was going great,'' Savvides said in a set of interviews in which he accused his former bosses of making him a scapegoat. ``Everything was going brilliantly. Then they sacked me. It's been a real roller coaster ride.''
Michael Golden, a spokesman for JPMorgan in London, described Savvides's allegations against the bank as ``without merit.'' He declined to respond to any of Savvides's assertions, including his recollections of conversations with JPMorgan executives, nor would he make any executives available for interviews.
Golden said the bank stands by its only public statement in the matter, which said Savvides was dismissed for failing to promptly disclose all aspects of the sale to his superiors.
Savvides is now awaiting his day in court. That may be as long as two years away, and the trial itself may take four years, according to Stylianos Vlastos, an Athens lawyer who isn't involved in the case.
Events leading to the lawsuit, which isn't a public document, offer a glimpse into the inner workings of a major bank. Since 2005, Greece has sold more than 1.5 billion euros of bonds like those bought by the pension funds, according to Bloomberg data.
At issue is exactly who at JPMorgan knew what would happen after the 280 million euros in government bonds were sold by the bank to North Asset Management LLP, a London-based hedge fund, at a price of 92.95 cents on the euro.
JPMorgan, which bought the bonds from Greece at 100 cents on the euro, was more than compensated for its 19.74 million euro loss on the sale by a gain from a corresponding deal with the Greek government, according to a person familiar with the details.
Under the terms of the bond sale, JPMorgan and the government entered into a so-called swap transaction, an agreement to exchange fixed-rate payments for ones based on floating rates.
The same day it bought the bonds, North Asset sold them to HypoVereinsbank, part of UniCredit SpA's HVB Group, for 99.9 cents, which in turn sold them at 99.95 cents, according to a statement from the unit of Milan-based UniCredit. The buyer, Athens brokerage Acropolis Axepey, said in a statement that it then sold the bonds to four Greek state-run pension funds at 100 cents on the euro.
The transactions caused a furor in Greece, where lawmakers demanded in a statement that JPMorgan explain ``how multiple transactions within the same day to get the bond to the pension funds are compatible with business ethics.'' Socialist opposition leader George Papandreou accused the government, JPMorgan, North Asset Management and Acropolis Axepey of selling the bonds at above-market prices.
Prime Minister Kostas Karamanlis fired Labor Minister Savvas Tsitouridis, unions held a one-day protest strike, and the government overhauled management of pension funds and began a review of their investments over the past nine years.
To smooth relations with the government, JPMorgan and North Asset agreed to buy back the bonds from the pension funds at face value, with the U.S. bank paying an additional, undisclosed amount in interest, according to an Aug. 22 statement by Greek Economy Minister George Alogoskoufis and Labor Minister Vassilis Magginas.
C. Kerry Fields, a professor of business law at the University of Southern California's Marshall School of Business in Los Angeles, said JPMorgan appears to have acted lawfully in its handling of the sale to North Asset Management and bears no responsibility for what happened later.
``The foolish people are the buyers because they paid so much,'' Fields said.
Board members of Greek pension funds are appointed by the government, labor unions and employers, often on a part-time basis, without specific professional or educational qualifications. The country has about 200 pension funds with assets of more than $44 billion, according to finance ministry estimates.
Savvides's boss, Alessandro Barnaba, wrote to Peter G. Doukas, Greece's deputy minister of finance, on March 28 that the bonds were sold to North Asset on a ``buy and hold'' basis. ``Buy and hold'' means that the acquirer plans to retain the assets and not sell them. Barnaba, whose letter was posted on the Greek finance ministry's Web site, was one of the executives whom JPMorgan declined to make available for an interview.
In a May statement, North Asset said JPMorgan knew ``at the highest level'' that the bonds would be sold again. The following month, Louis Plowden-Wardlaw, a managing director of the hedge fund, told the Greek parliament's standing committee on economic affairs that his company had never said it would be a buy and hold investor.
``I don't know who knew or didn't know at JPMorgan, but someone knew it,'' Plowden-Wardlaw said.
Jakob Stott, JPMorgan's chief operating officer for Europe, told the same committee that Barnaba's explanation in the letter to Doukas had been incorrect.
Identifying Savvides as a ``member of the core deal team,'' Stott said Savvides was fired for his ``failure to promptly share his knowledge of aspects of the structured bond transaction during the internal review process.''
A lie, said Savvides, who was head of derivatives sales for Greece and Cyprus. He said in interviews that senior executives at JPMorgan always knew North Asset intended to resell the bonds, charging that he was fired so they could save face with the Greeks and preserve future business.
``During the whole transaction, everyone knew that North was going to on-sell the bonds,'' Savvides said.
Stott was among the executives whom JPMorgan declined to make available for an interview.
For now, Savvides, who worked at Deutsche Bank AG, Investment Bank of Greece SA and EFG Eurobank Ergasias SA before joining JPMorgan in late 2005, is struggling to put his career back together.
``JPMorgan hired me because I had a really good reputation in the market,'' he said. ``Now look at it.''
A graduate of the Ziridis School of Athens, one of the oldest private schools in Greece, Savvides continued his education at Imperial College London, where he studied aeronautical engineering. In 1996, he wrote a thesis entitled, ``Application of Two-dimensional spectral/finite-difference and spectral/hp finite-element methods to cylinder flows.''
About a year after joining JPMorgan, he was asked to pitch deal ideas to North Asset, Savvides said. He proposed the structured bond, JPMorgan's first for the Greek government. Structured bonds are typically those linked to some form of derivative; this is designed to enhance return without affecting the bond's principal.
The transaction seemed simple enough, selling bonds to a hedge fund that specialized in emerging markets, mainly in eastern Europe.
Over the next few months, JPMorgan negotiated terms of the sale with the Greek government and North Asset. Savvides said that Barnaba, and North Asset's managing director, George Papamarkakis, were communicating ``constantly.''
The sale to North Asset was completed in February.
``How can Barnaba say after four months of negotiations that he wasn't sure that North Asset was going to sell the bond on?'' Savvides said. ``It's ridiculous. I didn't even have the authorization to get this deal done on my own. Of course my managers knew everything about what was going on.''
Papamarkakis declined to comment.
Savvides said that when he went to London at the end of February, he was praised as ``hero of the week'' for helping the bank put together its first structured bond for the Greek government.
Within days, the deal started to turn sour. On March 1, Greece's securities regulator suspended Acropolis from some services for inflicting ``significant losses'' on a client it didn't identify. The next day Labor Minister Tsitouridis said prosecutors and a special government auditor were looking into Acropolis's transactions with a pension fund that was one of the four that had bought the bonds.
On March 13, the labor ministry imposed stricter rules on funds. Then, on March 15, two Athens newspapers, Kathimerini and To Vima, said four pension funds paid excessive prices and fees to buy a ``secret'' 280 million euro government bond through Acropolis. The following month, Acropolis lost its brokerage license after an audit revealed the company had sold government bonds to pension funds at inflated prices in 2002 and 2003.
Savvides said his impression of his superiors' reaction to the newspaper accounts was that any questions the reports raised would ``fade away within days.''
They didn't.
The Greek authorities called him to talk about the bond, leading to a five-hour interview on April 2. Describing the questions as ``descriptive initially,'' Savvides said the prosecutor never asked him whether JPMorgan executives knew North Asset intended to sell the bond.
Nor did he bring it up, he said.
The next day, in London, in his first meeting with the bank's legal and compliance department, Savvides was asked if he knew that North Asset intended to sell the bonds, Savvides said. He told them he wasn't sure.
``I was trying to protect my managers,'' he said. ``I thought they would protect me. I followed Barnaba's line as laid out in his letter to Doukas.''
Harry Adamopoulos, a JPMorgan managing director in London who was responsible for Greece, had told him ``to take the line that this was a buy and hold bond,'' Savvides said.
Savvides said he worried that Papamarkakis might tell the Greek authorities that he, Papamarkakis, had told the bank North Asset intended to sell the bond.
Adamopoulos told him, ``Let Papamarkakis say whatever he wants,'' Savvides said. The bank declined to make Adamopoulos available to comment on Savvides's account.
To this point, Savvides said, he never expected that he might get entangled in conflicting stories. Then, he bumped into Andrea Vella, a JPMorgan executive who dealt in derivatives. He recalled Vella telling him, ``These guys are always looking for a culprit, but don't worry, we like you.''
Vella has since left JPMorgan and couldn't be located.
The next day, Savvides said, he was told that he should take a few days off.
``I was a little worried by this,'' said Savvides, who lives in Drosia, a suburb of luxury villas and apartment complexes 12 miles (20 kilometers) north of Athens. ``But I was stressed. I was going away for Easter with my family anyway.''
On April 11, JPMorgan suspended Savvides, pending further investigation. He was summoned to London on May 3 for another meeting, where he said Tony Best, JPMorgan's European head of derivatives sales and marketing, told him, ``You weren't cooperative during the initial stages of the review.'' The bank declined to make Best available for comment.
With that, Savvides was fired.
Three months later, he filed suit against JPMorgan.
Bloomberg