Private resolution of Bulgaria's troubled Corpbank increasingly less likely

By bne IntelliNews October 17, 2014

Only a few days before the Bulgarian National Bank (BNB) should announce the results from the comprehensive independent audit of Corporate Commercial Bank (Corpbank), a private resolution to the bank's problems seems increasingly less likely. The lender suffered a run on deposits in June and is now under central bank receivership.

BNB is expected next week to announce the results of the review carried out by Deloitte, Ernst & Young and local auditor AFA. So far no outside investors have shown interest in the bank and the lack of parliament prevents the state from participating in a possible restructuring. All of this suggests that Corpbank will be liquidated if declared insolvent.

Last month, the Vienna-based financial consultancy EPIC said that the three major Corpbank shareholders it represents intend to rehabilitate the bank through recapitalisation. The advisory firm insisted on signing a non-disclosure agreement with the central bank, demanded a permission to conduct a full due diligence on Corpbank and conditioned its participation in a resolution plan on the provision that the state also injects funds in the cash-flow insolvent lender.

The central bank, which some have accused of not encouraging a private solution to the troubled Corpbank, has said that EPIC has not yet moved forward to help the lender avoid bankruptcy. BNB informed on Thursday (Oct 16) that EPIC has not presented a restructuring plan and that it actually represents only Tsvetan Vassilev - the bank's main shareholder with a 50.6% stake. The central bank also warned that it may reject a possible effort by Vassilev to increase his investment in Corpbank and thus fill a potential capital shortfall because of his troubles with the law.

The other two owners of Corpbank are Oman’s sovereign wealth fund (SGRF) through its Bulgarian Acquisition Company II (30%) and VTB Capital, the investment unit of sanctions-hit Russian financial group VTB (9.1%).

Vassilev is currently in Serbia where he awaits extradition after surrendering himself to Belgrade police on September 18. Bulgaria issued an European Arrest Warrant for the businessman in August after indicting him for pressuring the chief cashier and the CEO of Corpbank to withdraw BGN 206mn (EUR 105.3mn) from the bank during the period from December 2011 to June 2014. The controversial businessman is also facing money laundering charges, not only in Bulgaria but also in Liechtenstein.

The latest official information, made public two months ago by the central bank, put the book value of Corpbank's assets at BGN 6.89bn and its equity at BGN 521mn as of end-June. Since then, however, the receivers working at the bank have provisioned a considerable amount of the lender's loans, thus reducing its assets and capital.

In the first eight months of 2014, the value of bad loans on Corpbank's balance sheet surged to BGN 493.2mn, widening the bank's Jan-Aug operating loss to BGN 412mn from BGN 258.7mn accumulated in Jan-July. Based on this data, it would take only one more month of a similarly bad financial results to completely wipe off the lender's equity, exhausting shareholders' ability to absorb any more losses.

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