Insight: Accusations fly in Bulgaria's murky bank run

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04/07/2014 10:35

By Matthias Williams and Tsvetelia Tsolova 
    SOFIA, July 4 (Reuters) - One worker at Bulgaria's Corporate 
Commercial Bank  6C9.BB  knew panic was setting in when she 
spotted colleagues among the anxious depositors lined up to 
withdraw cash from the troubled bank. 
    The alarm came in part because the week before, on June 13, 
with television news crews filming, Bulgarian state prosecutors 
had raided a building in Sofia that housed Corpbank offices. 
    Though both the prosecutors and the bank said the raid did 
not target Corpbank - the building housed other companies as 
well - customers soon began to withdraw their savings. Within 
days, the Central Bank had seized control of the bank, the 
fourth-biggest lender in Bulgaria, and suspended its operations 
for three months. 
    The dramatic raid and bank run were reminders that despite 
progress from the worst days of the euro crisis, parts of 
Europe's financial system are still far from secure. The run 
quickly spread to another bank and saw Sofia announce a 
protective $2.3 billion credit line. It also stoked 
uncomfortable memories of a 1996-97 crisis in Bulgaria, when 14 
banks collapsed, and followed much more recent bank meltdowns in 
Ireland, Greece, and Cyprus. 
    Corpbank had been adjudged safe and secure.  At the end of 
the 2013 financial year, its books were audited by KMPG, who 
found less than one percent of its loans were non-performing, 
against an average of 17 percent for Bulgarian banks. KPMG 
declined to comment. 
    And just days before the run on Corpbank, the International 
Monetary Fund had praised the country's financial sector as 
"stable and liquid". A senior IMF official has since said the 
problems at the two Bulgarian banks did not reflect any 
underlying problems in the system, which remains well 
capitalised and liquid. 
    The country's central bank initially blamed the bank run on 
media reports about Corpbank's main owner and leaked news that a 
central bank deputy governor was under investigation. Central 
Bank Governor Ivan Iskrov called the leak a deliberate "attack" 
on the bank. 
    Others suggested alternative reasons. Behind closed doors 
some government officials blamed the run on a clash between 
Corpbank's main owner Tsvetan Vassilev and his political rivals, 
without saying who they were. Prime Minister Plamen Oresharski 
publicly blamed a "corporate clash" for the run on Corpbank, 
without going into specifics. 
    When the run spread to First Investment Bank  5F4.BB , a 
bigger lender, the government pointed the finger at unnamed 
people for launching what they called a criminal attack on the 
country's financial system. Perpetrators were using phone text 
messages and the internet to spread malicious rumours about 
Bulgarian banks, the central bank, finance ministry and interior 
ministry all said. 
    Much is still unclear. Who was behind the internet rumours 
and text messages? Why did the government not investigate 
sooner? How exactly was the feud connected to the run on 
Corpbank? 
    "The security authorities, the Interior Ministry, are 
investigating. They have some suspicions and there are some 
people who have been accused (of the attack on the banks)," 
finance minister Petar Chobanov told Reuters. "What is true is 
that there is an investigation into malpractice at Corpbank. But 
what is the real situation? We are waiting to see what the 
external auditors will say." 
     
    RUMOURS 
    In the days before the Corpbank run, newspaper stories 
alleged  misconduct by Vassilev, and his businesses. Some papers 
alleged Corpbank had made improper loans to certain companies 
linked to Vassilev, though he told Reuters those claims were 
lies. 
    "The run on the bank was obviously a perfectly organized 
plot against me and Corpbank," he wrote in an email to Reuters. 
    As rumours swirled, depositors started withdrawing what they 
could. "For five days we managed to withstand the withdrawals 
that were like an avalanche," said the worker at Corpbank who 
had seen her colleagues withdrawing money. 
    On June 17, the central bank issued a statement saying all 
Bulgarian banks, including Corpbank, had high liquidity, were 
adequately capitalised and were functioning normally.  
    The next day, an anonymous letter was leaked to the media by 
someone purporting to be a central bank employee. The letter 
alleged that Tsvetan Gounev, a central bank deputy governor in 
charge of banking supervision, was under investigation by state 
prosecutors for abuse of office. The letter, parts of which were 
published on news websites and broadcast on national radio, 
alleged that the probe into Gounev was linked to dealings with 
an un-named bank that had been the subject of media attention. 
Local media speculated the bank in question was Corpbank. 
    Both the central bank and Gounev's lawyer told Reuters that 
Gounev would not comment on the investigation into him. 
    Within hours of the anonymous letter, the central bank 
confirmed that prosecutors were investigating Gounev, but did 
not go into specifics. They said Gounev had taken a voluntary 
leave of absence. The chief prosecutor told reporters on June 18 
that there was a pre-trial investigation into Gounev for not 
fulfilling his duties as a banking supervisor. Central Bank 
Governor Iskrov said the leaked letter was unlikely to have come 
from a central bank employee. 
    State prosecutors said the raid had been prompted by a 
tip-off by Protest Network, a Bulgarian anti-corruption activist 
group, and connected the raid with their investigation into the 
deputy governor. 
     
    BODY POLITIC 
    Moustachioed mogul Vassilev, Corpbank's main owner, is one 
of the country's most prominent businessmen. Last year his 
donations to a monastery prompted the institution to add his 
portrait to a mural of religious figures. Shared on Facebook, 
the pictures drew scorn from some Bulgarians, who complained 
that a wealthy businessman should not be paid such reverence. 
The painting was later removed. 
    Vassilev owns just over 50 percent of Corpbank. The other 
main shareholders are Oman's sovereign wealth fund, which has 
around 30 percent, and Russian bank VTB, with just under 10 
percent. The bank sponsors a Bulgarian soccer club, basketball 
team and several sports federations. Vassilev also owns more 
than 40 percent in Vivacom, Bulgaria's biggest telecoms operator 
by revenue. 
    Corpbank has had close ties to the state. In 2010 as much as 
48 percent of the deposits of major state-owned companies were 
held at the bank, finance ministry data show. A change to the 
regulations by a caretaker government which ran the country just 
before the Socialists took power in May 2013, had pushed this 
down sharply, Deputy Prime Minister Daniela Bobeva said. 
    Bulgaria's banks have had more than a decade of strong 
growth. Banking assets increased more than six-fold between 2001 
and 2014, to 43.8 billion euros. But ratings agency Standard & 
Poors says the country's banking sector is one of the weakest in 
Europe, and blames a rapid increase in borrowing for its fragile 
position. 
    In the weeks before the bank run, Vassilev had been feuding 
publicly with a rival mogul, 33-year-old Delyan Peevski, a 
member of MRF, an ethnic Turkish political party. MRF has been 
part of most Bulgarian governments since 1989, most recently 
forming a coalition government with the Socialist party. Peevski 
himself was appointed to a top government security job in June 
last year, an appointment that sparked months of street 
protests. He stepped down but the protests continued. 
    Peevski and Vassilev were once allies. In a February 2011 
newspaper interview, Vassilev called Peevski his "son". Vassilev 
told Reuters the two later fell out. Vassilev and Peevski have 
both alleged that each has plotted to have the other killed. 
Both have denied those allegations. 
    Questions to Peevski via a party spokesman were not 
answered. 
     
    HOLLYWOOD SCRIPT 
    Vassilev, who has stayed abroad since the bank run because 
he says his life is under threat, says he has no doubt what 
happened to his bank. 
    "I would give you details about what seems like a 
story-board of a Hollywood movie: How to ruin a bank! How to 
commit calumny! Subtitle: Threaten people by telling them your 
money is not safe and the majority shareholder is a 'murderer,'" 
Vassilev wrote in an email to Reuters. He did not name anyone 
behind the alleged plot. 
    "While there is a rift between Peevski and me, I believe 
that some media have over-concentrated their attention on it to 
deviate attention from what is truly happening in Bulgaria," 
Vassilev said. 
    Peevski, he said, was "a tool in a larger scenario" to 
destroy Corpbank and undermine Bulgaria's financial stability. 
"Arguably, this is in the interest of people with large debts 
who want to melt them away and the political circles that 
support them." 
    The precise nature of the feud is unclear, and both have 
given different reasons for it. Vassilev in an interview with a 
TV channel, parts of which were published on Corpbank's website 
one day before the central bank took control, said the "first 
sparks" began last year. Vassilev said he had refused to become 
part of such "malicious practices" as paying bribes to win 
public contracts. 
    Peevski has repeatedly denied allegations of wrongdoing. 
"The convenient excuse - Peevski - is used to disguise and crush 
problems and questions to which Mr. Vassilev himself needs to 
respond," Peevski said in an interview to Bulgarian news website 
pik.bg on June 18. 
    "For 13 years I have not heard any real charge against me 
backed by facts, evidence ... So I am being slandered, 13 years 
without facts and evidence by people with their own business and 
political interests." 
     
    RISKY TIMING 
    As the problems at Corpbank gathered pace, regional branch 
managers phoned Sofia headquarters worried about large 
withdrawals, according to the bank employee. Depositors, some of 
them in tears, were desperate to take out their savings, as were 
some state companies. 
    By June 20, more than a fifth of the bank's assets had been 
withdrawn. That's when the central bank acted, temporarily 
nationalising Corpbank. 
    In the days after the rescue, Bulgarian officials went on a 
scheduled visit to London as part of a European road show to 
drum up investment in a 1.5 billion euro bond. One or two 
investors at the meeting in the heart of London's financial 
district, asked about the run on Corpbank. 
    Officials characterized the run as a political event outside 
their control, according to a source who was present. 
    In January, Standard & Poor's had flagged potential 
supervisory problems in Bulgaria, warning that "the regulator 
has a limited record of successfully dealing with past crises." 
In its last report on Bulgaria, the IMF said Bulgaria needed "to 
reduce corruption and cronyism," and act "to reinforce the rule 
of law." 
 
 (With additional reporting by Angel Krasimirov in Sofia, and 
Laura Noonan and Sujata Rao in London; Edited by Simon Robinson) 
 ((matthias.williams@thomsonreuters.com)(Reuters Messaging: 
matthias.williams.thomsonreuters.com@reuters.net)) 
 
Keywords: BULGARIA BANKING/