Tycoon's Rise and Fall: A Modern Greek Drama - WSJ.com

By DEBORAH BALL and ALKMAN GRANITSAS

Andreas Vgenopoulos in 2009 as he discussed plans to save Olympic Air. The carrier has suffered along with the rest of Greece's economy. Associated Press

ATHENS—Three years ago, Andreas Vgenopoulos, a Greek lawyer-turned-tycoon, was riding high. His investment fund, which had €15 billion ($19.4 billion) to spend following one of the biggest private-equity fundraisings ever, had just snapped up Olympic Air.

Mr. Vgenopoulos was hailed as a national hero for saving Greece's long-suffering flag carrier—an event he celebrated with a grand soiree in an Athens airport hangar with Cirque du Soleil acrobats performing for the assembled guests.

Meanwhile, the three-way merger he engineered between Cyprus and Greek banks three years earlier had created Greece's fifth-largest financial institution and netted him a small fortune.

DPA/Zuma Press

In 2007, Andreas Vgenopoulos took a big leap by setting up a new private-equity fund, called Marfin Investment Group, or MIG, aimed at investing in Greece.

Today, however, Mr. Vgenopoulos has become a symbol of Greece's travails and the extraordinary pain the country's business community is suffering. He has put Olympic on the block, his private-equity fund is in the red and buried in debt, and he stands accused of bringing Cyprus to the brink of bankruptcy.

His assets on the island were temporarily frozen last month, while Cyprus officials probe his role in Cyprus's collapse. This month, a senior Cypriot lawmaker charged that lending practices at Mr. Vgenopoulos's bank, Marfin Popular, had cost Cyprus billions of euros, forcing it into a €10 billion bailout.

"A major scandal has been perpetrated against the banking system of Cyprus," said Dimitris Syllouris, head of the pro-government European Party. "At least €4 billion has been lost through this plot."

Mr. Vgenopoulos calls the allegations "ridiculous" and he declined to comment for this article.

But his rise and fall underscores how Southern Europe's one-time economic renaissance was built on low interest rates and a giddy, debt-fueled boom that papered over deep structural problems. And his story underscores the many challenges still facing businessmen in the country at the center of Europe's debt crisis, despite signs early this year that Greece was turning the corner.

A Closer Look at MIG's Major Investments

• January 2006: Hygeia S.A., private health clinics
• December 2006: Singular Logic, provider of software services, including those used by the Greek government for national elections
• June 2007: MIG Real Estate, real-estate fund holding prime office space
• July 2007: Vivartia, Greece's largest food company
• August 2007: Hilton Cyprus. (Up for sale)
• October 2007: Attica Holdings S.A., the largest ferry operator in the eastern Mediterranean
• December 2008: FAI Rent-a-Jet AG, a medical-evacuation operator. (Up for sale)
• March 2009: Olympic Air Group, Greece's flag carrier (Up for sale)

Other tycoons who built their fortunes on the easy money flooding Europe after the birth of the single currency are also in dire straits. In Spain, Florentino Pérez, a construction magnate who made a fortune by flipping stakes in large listed companies, is buried in debt. Spiros Latsis, among Greece's richest men, has seen his own fortune halved and was recently forced to cede control of Eurobank, once a leading pillar of his empire.

Mr. Vgenopoulos, who came from a modest Athens home, found he had a Midas touch when as a lawyer he successfully managed distressed debts in the shipping industry. That brought him his first big payout as well as valuable contacts with Greece's shipping magnates. He later parlayed those contacts into a thriving investment business.

Then, in 2006, he engineered the three-way merger of Cyprus's second biggest lender, Cyprus Popular Bank PCL, or Laiki, with Greece's Egnatia Bank and his own Marfin Bank, a deal that brought him even greater riches and established his reputation as a deal maker, say bankers who worked with him at the time.

"He represented a new player on the scene," said Panagiotis Petrakis, economics professor at Athens University. "But he also very much symbolizes the rise and fall" of Greece.

In 2007, Mr. Vgenopoulos took a huge leap by setting up a new private-equity fund, dubbed Marfin Investment Group, MIG.AT +2.77% or MIG, aimed at investing in Greece—then a darling of international investors. Puffing on Cuban cigars, Mr. Vgenopoulos, a champion fencer who represented Greece at the 1972 Olympics, smoothly sold big investors on his ability to exploit the region's promise, say bankers and former executives who worked closely with him.

Despite his relatively thin track record, Greek shipping tycoons, Fidelity, Dubai's royal family and other heavyweights plunked down hundreds of millions each, for a total of more than €5 billion, one of the biggest private-equity fundraisings ever.

Getty Images

The MIG group snapped up some high-profile businesses in the region, including Olympic Air and the country's leading ferry operator.

With leverage, Mr. Vgenopoulos had €15 billion to spend, although he would never tap those extra loans.

After violating the covenants on its loans last year, MIG is currently negotiating with its lenders to extend the maturity of its bank debt and ease the terms.

Mr. Vgenopoulos had quickly snapped some of the jewels of Greek industry at peak prices: hospitals, the country's biggest food company, and a ferry operator, as well as assets in places like Croatia and Serbia.

But Olympic Air was the symbol of Mr. Vgenopoulos's attempt to become a latter-day Aristotle Onassis, who founded the airline in the 1950s. In 2009, Mr. Vgenopolos bought the airline, which was losing €1 million a day, for €180 million, after the state failed three times to sell it. The deal was greeted with euphoria at home, as he pledged to renew the fleet, turn a profit by 2011 and make Olympic a world-class carrier. At a party to celebrate the deal, the Cirque du Soleil acrobats were on hand. Television ads hailed the salvation of Greece's national carrier. "Olympic spreads its wings and rises to where it belongs: up high—Greece up high," intoned one ad.

"We did our duty," said Mr. Vgenopoulos in a March 2009 ceremony celebrating the acquisition. "We promise to do everything to make Greeks proud of a new Olympic."

Instead, Olympic has swooned along with Greece's economy. Squeezed by competition from Aegean Airlines AEGN.AT -0.65% and Ryanair RYA.DB -2.84% and an economy in a tailspin, Olympic sold lucrative international slots such as London, and has shriveled to a domestic airline. Today it mostly ferries passengers to the Greek islands on routes that are often subsidized by the government. And long delays by the Greek state in paying Olympic for the routes have further squeezed the airline.

Moreover, Greek domestic airline traffic has fallen by nearly 30% since 2009, while international traffic is down 13%, according to Greek airline consultant Andreas Papatheodorou. Olympic today carries a third fewer passengers than when Mr. Vgenopoulos bought it, and it lost €19 million in the first half of last year.

Reuters

The Marfin Investment Group in Athens

"It's a question of vanity," said Rigas Doganis, former CEO of Olympic. Mr. Vgenopoulos "must have felt he could do something with it, but it showed a lack of understanding of the airline."

Mr. Vgenopoulos is now trying to sell it to Aegean at half the price he paid for it, but is battling European Union antitrust opposition. If the sale doesn't go through, Olympic may further shrink, relying almost entirely on the subsidized routes, say analysts.

Meanwhile, just like most of the Greek bourse, the MIG fund has lost 95% of its value, while its current liabilities exceeded its current assets by about €1 billion at the end of last year. This spring, MIG, which posted a €1.26 billion loss last year, launched a rights issue for up to €660 million to help ease a continuing renegotiation of its huge debt, but has yet to close the issue. The issue, which was due to close at the end of May, has since been extended through July amid weak market sentiment. The company has also put a slate of assets on the block.

Mr. Vgenopoulos is also under renewed fire for his role in tying together the Greek and Cypriot banks. When Popular Bank, as it now known, closed early this year as part of Cyprus's bailout, it was already being kept afloat by an emergency lifeline from Cyprus's central bank.

But those problems emerged only after Mr. Vgenopoulos had left the bank in late 2011 when it became clear that Popular Bank—along with rival Bank of Cyprus—would need billions of euros in new capital from the Cypriot government following a €200 billion debt restructuring in neighboring Greece, something that would ultimately force Cyprus to seek its own bailout from euro zone peers. Marfin Popular, as well as its bigger local rival, Bank of Cyprus PCL, suffered some €4.3 billion in combined losses on the Greek government bonds they held. Those losses, combined with billions of euros in nonperforming loans, forced them to ask the Cyprus government for aid, and in turn led Cyprus to seek a rescue from its euro-zone partners and the International Monetary Fund.

But critics say that years of over-aggressive lending in Greece—including loans made to support MIG's capital increase when Mr. Vgenopoulos was still in charge—left Marfin Popular's balance sheet so stretched that Cyprus found it impossible to restructure or find a buyer for the bank.

In a counteroffensive, Mr. Vgenopoulos, known for this brash style, this year launched legal proceedings against Cyprus, saying MIG shareholders, which held a significant stake in Marfin Popular, had lost €824 million from the nationalization of the bank.

A court case "is only way to deal with the slander and mudslinging," he told a Cyprus newspaper recently.

Tycoon's Rise and Fall: A Modern Greek Drama - WSJ.com