Bulgarian bank shares tumble after ruling party MP comments (updated)

First Investment Bank AD

26/06/2014 16:36

* Shares in third biggest listed lender lead falls 
    * Traders say Socialist MP comments triggered declines 
    * Last week central bank took control of troubled lender 
 
 (Adds details, background) 
    By Tsvetelia Tsolova and Angel Krasimirov 
    SOFIA, June 26 (Reuters) - Shares in Bulgarian banks fell 
sharply on Thursday after a lawmaker from the ruling Socialist 
Party said another lender could come under attack following a 
run on the country's fourth largest bank. 
    However, analysts said low turnover on the Sofia bourse had 
exaggerated the price declines and Fitch rating agency said it 
saw "limited" risk of serious banking sector contagion from the 
crisis over Corporate Commercial Bank (Corpbank)  6C9.BB . 
    Last week, customers unnerved by reports of shady deals 
involving Corpbank rushed to withdraw their deposits, prompting 
the central bank to seize control of the lender and shut down 
its operations. 
    Shares in First Investment Bank  5F4.BB , Bulgaria's third 
largest lender, closed 4 percent down on Thursday after earlier 
shedding as much as 18.7 percent. Central Cooperative Bank 
 4CF.BB  was down 4.8 percent and Bulgarian-American Credit Bank 
 5BN.BB  lost 4.4 percent. 
    A Reuters photographer saw no signs of panic outside two 
branches of First Investment Bank in Sofia on Thursday. 
    "It is still early to say what scared the investors, but it 
could certainly be linked to a statement by a politician this 
morning that suggested a new attack on a bank might be in the 
making," said one trader, speaking on condition of anonymity. 
    Earlier, Socialist lawmaker Anton Kutev told Nova TV he 
thought there had been a deliberate attempt to "break" Corpbank. 
    "Someone is trying to pull down another bank, as far as I 
feel," he added, according to the channel's website. 
    Kutev did not specify who might be trying to take such 
action but added that Bulgaria's wider banking system and the 
currency board that underpins it could be at risk. Kutev could 
not be reached for further comment.   
    The run on Corpbank, which may lead to its nationalisation, 
was an ugly reminder for Bulgarians of a crisis in 1996-1997 
that bankrupted 14 banks and forced the introduction of the 
currency board regime, which pegs the Bulgarian lev to the euro. 
    The Corpbank affair has also highlighted persistent concerns 
about poor governance and shadowy ties between state officials 
and private business in Bulgaria, the European Union's poorest 
member state and one of its most corrupt.   
     
    "EXCELLENT CONDITION" 
    Corpbank's problems are a 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. 
    Global ratings agency Standard and Poor's downgraded 
Bulgaria to one notch above junk earlier in June, citing 
political instability that has stifled economic reforms. 
    Despite its woes, the Bulgarian government successfully 
launched a 1.5 billion euro bond sale on Thursday, needed to 
roll over existing bonds until January and also to finance a 
budget deficit planned at 1.8 percent of GDP for 2014. 
    "The Bulgarian stock exchange has such a low liquidity and 
turnover that I would not say it reflects reality properly. The 
banking system in Bulgaria is in a good condition, has excellent 
capital adequacy ration and is very liquid," said Georgi 
Angelov, a Sofia-based economist with Open Society Institute. 
    After the run on Corpbank, government ministers 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 central bank's takeover of Corpbank will test its bank 
rescue and resolution framework," Fitch Ratings said in a 
statement on Thursday.  
    "But CorpBank's problems are idiosyncratic and any contagion 
to the largely foreign-owned banking sector will probably be 
limited. The rescue is therefore likely to be neutral for 
Bulgarian bank ratings," it said.  
    About two thirds of the banking sector is foreign-owned. 
    A spokesman for First Investment Bank said the fall in its 
share price was "a normal market response" to the poor liquidity 
of the bourse and the "current situation" in the banking sector, 
adding the bank was in "excellent condition". 
    A central bank spokesman contacted by Reuters said the 
institution never commented on share price falls. 
    The central bank has started talks with the existing 
shareholders of Corpbank about rescuing it. If the talks fail, 
the central bank is expected to nationalise it. 
    Corpbank and its main shareholder deny any wrongdoing.  
 
 (Additional reporting by Stoyan Nenov; Writing by Matthias 
Williams; Editing by Gareth Jones) 
 ((matthias.williams@thomsonreuters.com)(Reuters Messaging: 
matthias.williams.thomsonreuters.com@reuters.net)) 
 
Keywords: BULGARIA STOCKS/BANKING