Bulgaria ready to rescue Corpbank after bank run (updated)
22/06/2014 18:20
* Auditors to assess Corpbank liabilities within 10 days
* Two state institutions to inject capital into Corpbank
* Crisis hits Bulgaria ahead of bond road show
* Government appeals to Bulgarians to keep calm
(Adds quote, details, background)
By Tsvetelia Tsolova and Matthias Williams
SOFIA, June 22 (Reuters) - Bulgaria is ready to rescue
Corporate Commercial Bank (Corpbank) by injecting capital and
enforcing losses on shareholders, the central bank said on
Sunday, after a run on the country's No. 4 lender prompted the
central bank to take it over on Friday.
The central bank said the government was also prepared to
inject capital into a subsidiary that Sofia-listed Corpbank
6C9.BB recently bought from France's Credit Agricole CAGR.PA
and which has been taken over by the central bank as well.
It was not immediately clear how much capital would be
needed to prop up Corpbank - which had loans of almost 5 billion
levs ($3.5 billion) as of March, and capital of 622 million
levs - and the subsidiary.
The central bank said it would ask independent auditors to
provide a full assessment of Corpbank group's assets and
liabilities within ten days. Corpbank and its subsidiary will
re-open on July 21, the central bank added in a statement.
The case marks the first rescue of a Bulgarian bank
following a financial crisis which has seen EU states pump more
than 5 trillion euros ($6.8 trillion) into ailing lenders
including Spanish No.4 Bankia BKIA.MC , Ireland's AIB ALBK.I
and Permanent TSB IPM.I , Britain's Royal Bank of Scotland
RBS.L , and Greece's four largest banks. ID:nL6N0LX1M4
The Bulgarian central bank on Friday took control of
Corpbank for three months while pleading with depositors - many
of them queuing up outside Corpbank branches - not to panic.
The bank run started after media reports of suspect deals
involving the bank and its top shareholder. Both have denied any
wrongdoing.
Eager to avoid panic spreading to other Bulgarian lenders,
government ministers have urged people to stay calm and stressed
Corpbank's problems were an isolated case. On Saturday the
deputy prime minister said citizens would "not lose a single
lev" as a result of Corpbank's problems.
The crisis is another headache for Prime Minister Plamen
Oresharski's minority government, which has struggled to revive
economic growth and stem a sharp drop in foreign investment, and
is due to resign shortly after losing European elections in May.
The ongoing political instability prompted Standard and
Poor's to downgrade Bulgaria's sovereign credit rating to one
notch above junk earlier in June.
The bank run hit Bulgaria on the eve of an investor road
show in Europe to raise 1.5 billion euros from bond sales. The
money is needed to roll over bonds that mature in January and
finance a budget deficit planned at 1.8 percent of GDP for 2014.
The bank run was also an ugly reminder for Bulgarians of a
domestic financial crisis in 1996-1997 that bankrupted 14 banks
and forced the introduction of a currency board regime, which
pegs the local lev currency to the euro.
DEPOSITORS PROTECTED
By law, Bulgarian bank deposits in local and foreign
currencies are guaranteed up to 196,000 levs ($136,600), or
100,000 euros, mirroring a guarantee across all 28 EU countries.
"Actions will be undertaken to write off the capital of the
shareholders of the (Corpbank) banking group and revoke their
rights in accordance with the procedures stipulated by law," the
central bank said.
The leading shareholders in Corpbank are Bulgarian
businessman Tsvetan Vassilev, with just over half the company;
Oman's sovereign wealth fund, with around 30 percent; and
Russia's VTB Asset Management, with nearly 10 percent.
The bank had subordinated debt with a value of 198 million
levs at the end of March. Several bailed out European banks have
forced their subordinated bondholders to share losses, but
Bulgaria has not yet said how it will treat Corpbank's.
Corpbank is suffering a liquidity shortage but the central
bank stressed that the lender was not bankrupt, implying that
its assets are still worth more than its liabilities. Liquidity
shortages, or an inability to borrow money from other banks to
fund bills as they fall due, can occur when there are concerns
that banks do not have a big enough cushion to fund losses.
The central bank governor had said he would start talks with
Corpbank's shareholders on what kind of support they could
offer. But on Sunday the central bank said it would order the
state-run Bulgarian Development Bank and the country's Deposit
Insurance Fund to inject capital into Corpbank and its unit.
"My personal opinion is that initial talks with the
shareholders have already been carried out, following which the
bank has committed to undertake the following steps," said a
board member of the Deposit Insurance Fund by phone.
"In short, as of July 21 the bank will open as a state
bank. This is good because it means all deposits will be safe,"
Bisser Manolov told Reuters, stressing that he was speaking in a
personal capacity and not on behalf of the Fund.
The central bank governor on Friday said depositors in
Corpbank had stepped up withdrawals after an anonymous letter
was leaked to media that said the central bank's deputy governor
in charge of banking supervision was being investigated by
prosecutors for abuse of office.
Bulgarian media linked the investigation of the deputy
governor to allegations of wrongdoing at Corpbank.
The central bank has since confirmed the investigation and
said the deputy governor had taken a voluntary leave of absence.
Bulgarian tobacco company Bulgartabac 57B.BB , one of
Corpbank's prominent clients, also announced earlier this week
it was taking its accounts out of the bank.
($1 = 0.7366 Euros)
(Additional reporting by Laura Noonan in London; Editing by
Mark Potter)
((matthias.williams@thomsonreuters.com)(Reuters Messaging:
matthias.williams.thomsonreuters.com@reuters.net))
Keywords: BULGARIA CORPBANK/