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Greek Banker Devised Formula for Libor, Headed London Operations of U.S. Firms

Starting in the 1960s, U.S. financiers seeking to do business in Europe and the Middle East often turned for advice to a tall, elegant Greek, Minos A. Zombanakis.

Mr. Zombanakis, who died Dec. 22 at the age of 92, was a pioneer in the so-called Euromarkets, a means of tapping the billions of dollars and other currencies held outside their countries of origin. Mr. Zombanakis and other bankers used those funds to package loans and bond issues for companies and nations. He was widely credited with originating the London interbank offered rate, or Libor, a global benchmark for pricing loans.

The Eurobond and loan markets thrived by bypassing national regulations and recycling expatriated funds held by companies, oil exporters, tax evaders with numbered Swiss accounts and others.

Mr. Zombanakis ran European operations for firms including Manufacturers Hanover Trust, First Boston Corp. and Blyth, Eastman Dillon & Co. As early as 1975, he made public warnings that poor countries were becoming overburdened with debt they might not be able to repay. Those warnings were borne out by the Latin American debt crisis of the 1980s. He became an adviser to debt-laden governments, including that of his homeland.

Though born in a house with dirt floors, Mr. Zombanakis earned degrees in economics and public administration at Harvard University, where a professorship of international finance was endowed in his name in 2010.

When the New York Times wrote a primer on Euromarkets in 1976, it described Mr. Zombanakis as “probably the best known figure in the business.”

Minos Andreas Zombanakis was born July 16, 1926, in the village of Kalyves on the Greek island of Crete as the second of eight children in a family without electricity or indoor plumbing. The family farm produced olives and grapes. His father was mayor of the village.

During World War II, Nazi troops occupied Crete. At 17, Mr. Zombanakis fled to Athens in a smuggler’s boat. He attended the University of Athens but ran short of money and dropped out to work as a porter in a fruit and vegetable market.

When British troops arrived in Athens in 1944, he stopped a British officer in the street to ask for a job. That led to work with the British and later with U.S. forces distributing aid in Greece.

He served in the Greek army during the Korean War and returned home to work for the Bank of Greece, which eventually sent him to Washington, D.C., as its representative. Eager for more education, he “talked his way” into graduate school at Harvard, even though he had no undergraduate degree, according to David Lascelles, author of a 2011 biography of Mr. Zombanakis.

After completing his Harvard studies, he briefly taught economics at the American University of Beirut. In the late 1950s, he became a Rome-based representative of Manufacturers Trust Co., responsible for business in the Middle East. That bank soon became Manufacturers Hanover and through mergers vanished into what is now JPMorgan Chase.

In the late 1960s, Manufacturers Hanover promoted him to head a new offshoot in London. In that role, he organized in 1969 a syndicated loan of $80 million to Iran. Bankers celebrated the loan with champagne and Iranian caviar at the Manufacturers Hanover office in London’s Mayfair district, Mr. Lascelles wrote.

Rather than fixing an interest rate for the life of the loan, the bankers agreed on a rate that would float at a margin above their cost of funds. Mr. Zombanakis said he came up with a way to reset that rate periodically based on an average of the costs of funds reported by participating banks.

That rate, known as Libor, proliferated over the next four decades and eventually was the basis for pricing trillions of dollars of financial instruments ranging from home mortgages to derivatives used to bet on the direction of interest rates. It became controversial over the past decade when banks were found to have secretly manipulated the rate to increase trading profits. Regulators have been seeking to phase out Libor in favor of a system less open to manipulation.

Mr. Zombanakis said he never envisioned such a broad role for Libor. Nor did he see that it might be abused by traders. “You always worked in the market with the assumption that you were dealing with gentlemen,” he told the Guardian in 2012, “and you assumed that people acted honorably because they couldn’t afford to act otherwise.”

In the past decade, Mr. Zombanakis lived near his boyhood home in Crete and remained interested in financial markets. He saw plenty of challenges for regulators. “Banking now is like a prostitution racket run by pimps,” he told Bloomberg Markets in 2016. “There’s just too much money involved.”

Mr. Zombanakis is survived by two sisters, two sons and four grandchildren. His wife, Pia, an authority on Byzantine art, died in 2007.
Source: Dow Jones

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