ATHENS — In unmarked offices here on a dusty block choked with strip clubs and burned-out buildings, several dozen employees of a Wall Street firm spent months poring over bank loan portfolios as Greece struggled with its debt crisis.
They belong to what has become the go-to SWAT team in financial crises. Their employer, BlackRock, may be little known outside financial circles even as it manages a world-leading $3.51 trillion of assets, but the firm is exerting enormous influence as a behind-the-scenes adviser to troubled governments around the globe.
In Greece, BlackRock is helping determine just how much capital the country’s banks will need to raise in the coming months. It is a crucial step as Greece tries to fix its banking industry and its broader economy, but the task is a risky one.Set the capital levels too low and financial firms may not have an adequate cushion to withstand further losses. Set the bar too high and the banks may struggle to find investors willing to come up with the money. In either situation, the government could be forced to step in with additional money, deepening the country’s woes.
BlackRock knows the stakes. Along with Greece, the financial firm has advised the Irish government and the British Treasury. In Ireland, BlackRock’s findings formed the basis of a bank’s effort to raise an additional $34 billion. The United States Treasury hired BlackRock during the 2008 financial crisis to help value real estate and other assets the government was acquiring as it stepped in to bail out teetering financial firms like the American International Group.
The executive who leads these efforts, Craig Phillips, keeps a poster of the movie “The Exorcist” in his office, saying that he sees his job as helping governments and companies confront their problems. “We have been conditioned to be ultraresponsive,” he said.
The appeal of BlackRock is that it has the size, systems and expertise to scour and analyze huge volumes of financial data quickly. In Greece, for example, it reviewed 10 million loans in about three months. Another attraction is that unlike other financial firms — say, Goldman Sachs — BlackRock is not known for making splashy bets that can land it in the headlines. It has largely flown beneath the public’s radar.
Yet BlackRock is no stranger to controversy. In the United States, the firm — which makes most of its profits by managing money for investors, pension funds, endowments and other institutions — has been criticized for buying and selling some of the same securities that its BlackRock Solutions unit is valuing for the government. Few firms have such access to a vast amount of market-moving information, and that, some critics say, presents a potential conflict of interest.
“Imagine you consult with Greece and you see the inside issues and you realize with greater certainty it’s going to go a certain way,” said Robert Jarrow, a professor of finance at Cornell University. “How could you not make investment decisions based on that?”
Evangelos Venizelos, Greece's finance minister.Simela Pantzartzi/European Pressphoto AgencyEvangelos Venizelos, Greece’s finance minister.
Eyebrows were raised in Greece when the firm was approached to handle loan valuation work for a friendly merger in Greece between two banks it had just reviewed. BlackRock said it hadn’t made a decision on whether to accept this assignment. Mr. Phillips added that the company had internal guidelines, which are in place to “manage actual and perceived conflicts of interest.”
There is little disputing BlackRock’s rise as one of the world’s most influential players. During the financial crisis in the United States, the firm’s chief executive, Laurence D. Fink, turned his Rolodex of contacts into a number of assignments for the federal government. Now, BlackRock Solutions logs revenue of $510 million, up from $198 million in 2007. It earned $17 million on the Greece project.
The call from Greece came during the last week of June. Over the last decade, the country had issued billions of dollars of sovereign debt, prompting a crisis that has crushed the country’s economy, pressured its banks and rattled the European financial system.
To help stabilize the system, the Bank of Greece looked for a firm to review the loan portfolios of 18 financial firms. Bank of Greece asked BlackRock and three other firms, Blackstone, Oliver Wyman and Alvarez & Marsal, to submit a proposal on how each would go about valuing the portfolios.
While the other companies had analytical and restructuring credentials, BlackRock had an advantage in having just completed a similar assignment in Ireland. “They were the only company that had analyzed a banking system in the same period of time,” said Charalampos Stamatopoulos, a member of the monetary policy council at the Bank of Greece.
News that BlackRock had been hired sent shock waves through the Greek banking system. Officials worried that local banks would have to raise significant levels of capital — as in Ireland — and put additional strain on institutions.
“We had heard about their work in Ireland, and their results caused a lot of panic,” said Artemis Theodoridis, head of wholesale banking at Alpha Bank. “It was scary.”
BlackRock faced a number of obstacles. This was its largest assignment yet — in Ireland it looked at just four banks. It was also the first job where staff members did not speak the language.
Job seekers at an employment center in Athens.Kostas Tsironis/Bloomberg NewsJob seekers at an employment center in Athens.
In a city at times rocked by violent protests, BlackRock sought a low profile. Employees were not allowed to carry or wear anything bearing the company logo. The firm hired 18 armed security guards to transport employees in vans or, in rare cases, on motorcycles. BlackRock even had a code name: Solar, leading some tenants in its office building to think the team was a solar energy company.
As part of the assignment, BlackRock gathered information on millions of loans and used the data to create a view of the loss potential on the portfolios. The banks set up data rooms for BlackRock and uploaded information, allowing the firm to see things like collateral and payment history.
BlackRock and the banks butted heads on some issues. For instance, BlackRock wanted to write all loans backed by third-party guarantees to zero, since they were riskier than those backed by collateral.The banks resisted, but “in the end there was no room for debate,” said George Aronis, also of Alpha Bank. The loans were written down to zero.
Jessica Tan and Charles Hatami, two of BlackRock’s day-to-day managers in Greece, said that they were surprised by both the quality of the data and the results. Most institutions, they said, did not lend recklessly, as the United States banks did during the real estate boom.
“The consumer lending market is relatively new in Greece, and they were disciplined in their approach,” Mr. Phillips of BlackRock said. “Unlike other countries, the Greek consumer is not debt laden.”
Maria Mavridou, alternate director of financial stability at the Bank of Greece, said that BlackRock’s findings were likely to be released in the coming weeks by the government. The report will describe the current state of the Greek banking system and outline additional capital requirements.
“They didn’t know anything about Greece, but they sure know data and what to do with it,” she said.
4 weeks ago
No comments:
Post a Comment