Bulgarian lawmakers pave way for election with bank crisis unresolved (updated)

First Investment Bank AD

24/07/2014 12:10

* PM stepped down after poor May election result 
    * Says regrets lack of support for reforms 
    * Bulgaria CDS rise to near three-week high 
    * Investors need swift solution to bank crisis: trader 
 
 (Adds PM quote, credit default swaps, background) 
    By Tsvetelia Tsolova and Angel Krasimirov 
    SOFIA, July 24 (Reuters) - Bulgarian lawmakers voted 
overwhelmingly to accept Prime Minister Plamen Oresharski's 
resignation on Thursday, paving the way for an interim 
government to take over in August and a snap election in early 
October. 
    Oresharski's departure leaves his successor to sort out the 
Balkan state's worst banking crisis since the 1990s, with the 
fate of its fourth largest lender undecided. Bulgaria's credit 
default swaps rose on Thursday to their highest level since July 
4, according to Markit, the financial information services 
company, as investors sought insurance against losses.  
    In power for just over a year, Oresharski resigned on 
Wednesday after a poor showing by his Socialist party in May's 
European elections. Those results had also led the Socialists' 
junior coalition partner to withdraw its support. 
    Approval of his resignation was largely a formality after 
Bulgaria's political parties had agreed to hold early polls. The 
vote was 180 approving the resignation, eight opposing, and 
eight abstaining. 
    Political instability has plagued the European Union's 
poorest state over the past two years. Failure to tackle 
problems such as endemic corruption and inefficient state firms 
prompted a sovereign credit rating downgrade in June.  
    "I do regret that we did not have enough political support 
and time to carry out structural reforms in healthcare, 
education and administration," Oresharski told reporters, 
speaking publicly for the first time since his resignation. 
 
    BANK CRISIS        
    Corporate Commercial Bank (Corpbank)  6C9.BB  was hit by a 
run on deposits in June, forcing the central bank to take 
control of the lender and shut down its operations. The run then 
spread to another, bigger lender.  
    With the government gone, it is unclear how Bulgaria plans 
to rescue Corpbank and to what extent it will protect its 
depositors and dollar bondholders. Parliament had earlier 
rejected a proposed rescue package, which would have hived off 
Corpbank's good assets and liabilities to a subsidiary.  
    "The government's resignation has been long awaited and its 
effects were already calculated by investors," said Dimitar 
Georgiev, a trader with the Sofia-based Elana brokerage house. 
     "The whole political situation has been calculated already, 
so there is no impact on stocks today. The market needs a swift, 
fair and clear solution for Corporate Commercial Bank, which 
should contain the problem to just this bank, and a stable 
political environment after the October polls." 
     Bulgaria's Sofix index  .SOFIX  was down 0.17 percent as of 
1009 GMT on Thursday, after the vote by lawmakers.  
    The blue chip index shot up more than 40 percent in 2013, 
shrugging off the resignation of a previous government and 
months of street protests, as investors decided its stocks were 
undervalued as the economy recovered. 
    The index has risen more than 9 percent this year, but fell 
to a year's low on June 27, when the bank run hit First 
Investment Bank  5F4.BB , Bulgaria's third largest lender, a 
week after Corpbank was taken over by the central bank. 
    The main opposition, centre-right GERB party is expected to  
top the Oct 5 polls. But it may struggle to get an outright 
majority.     
    Bulgaria, a country of 7.3 million people, also needs to 
overhaul its education system to make its workforce more 
efficient and to clean up its graft-prone healthcare system. 
    Oresharski ruled in a minority coalition that relied on the 
outside support of the nationalist Attack party to survive a 
series of no confidence votes. The persistent instability 
prompted ratings agency Standard & Poor's to downgrade Bulgaria 
to one notch above junk in June, before the banking crisis 
erupted.  
 
 (Writing by Matthias Williams; additional reporting by Chris 
Vellacott in London; Editing by Larry King/Ruth Pitchford) 
 ((matthias.williams@thomsonreuters.com)(Reuters Messaging: 
matthias.williams.thomsonreuters.com@reuters.net)) 
 
Keywords: BULGARIA ELECTION/PARLIAMENT