Nadia Damon in Sofia -

Recent rumours questioning the health of one of Bulgaria's leading financial institutions, First Investment Bank (FIB), have reached a head, with the Bulgarian prime minister being forced to step in to assure both investors and customers that the bank isn't on the verge of collapse.

Following what PM Sergey Stanishev dubbed "black PR" against the bank, many of FIB's customers began panicking in mid-May, queuing outside branches across the country in a desperate bid to withdraw their savings. Some English-language internet forums even featured posts from users urging anyone involved with the bank to retrieve their money as quickly as possible.

FIB's performance on the Bulgarian Stock Exchange (BSE) was also affected, with shares in the bank initially plummeting on the morning of May 15. They later rallied, however, following Stanishev's official statement, and closed just 2.60% down at BGN6.73 each, with a turnover of 114,988 shares.

Maya Georgieva, executive director of FIB, also moved to deny there was any financial crisis at the bank, telling Darik News that clients were welcome to withdraw their money at any time. Moreover, FIB has called on the prosecutor's office and other financial intelligence to assist in identifying the sources "spreading the false allegations," which many believe could be the work of an investor keen to lower the bank's price ahead of a takeover.

In a bid to ease minds and quell speculation, FIB pointed to its first-quarter results for 2008, released at the end of last week. These figures show that FIB has attracted over BGN580m (€297m) in new deposits, while its liquidity exceeds 23% and its capital adequacy stands at nearly 14%. Georgieva claims that both these figures exceed both international and the Bulgarian National Bank standards. Following the statements by Stanishev, the BNB and Georgieva, investor confidence recovered a little, with FIB shares on the stock market increasing to BGN7.11 apiece (with turnover 24,655) by the end of play on May 17.

Rumours

PM Stanishev has vowed not to let the matter drop, however, and has appointed the State Agency for National Security to head an investigation into the rumours. While he refrained from directing referring to FIB in his statement, Stanishev commented: "Rumour scenarios related to unfair competition or political interests would be considered an extremely irresponsible act since people have been driven to withdraw their money and lose money due to bank-imposed penalties."

For its part, the central bank's Governing Council insisted that all Bulgarian banks, "including FIB, are in perfect condition, with high liquidity and normal lending levels." It added that it won't allow FIB to find itself in a difficult position due to groundless rumours - a stance that is fully supported by the government. "The case with FIB is a scandal, not a crisis," Ivan Iskrenov, director of the central bank stated. He added that he will also be insisting upon clarification from the Prosecutor's Office as to the source of the rumours.

FIB executive director Georgieva has confirmed that there has been widespread investor interest in the bank, claiming that JP Morgan, Merrill Lynch and Morgan Stanley have all approached FIB with a list of investment projects in Bulgaria, which involve large-scale banks, willing to acquire it.

According to Bulgarian news service Novinite, however, major FIB shareholder Tseko Minev (who holds a 29% stake in the bank), firmly believes the rumours were not generated outside the country. Instead, he reportedly believes they are the work of former secret service employees. "Someone has used the moment when the bank was vulnerable during a change of software," he is quoted as saying. "The new BGN580m deposits may well have triggered the envy of competitors in the Bulgarian financial sector."

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