| SOFIA, July 4
SOFIA, July 4 One worker at Bulgaria's Corporate
Commercial Bank 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, 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
"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."
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
"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
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
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
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
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,"
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
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
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
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
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
(With additional reporting by Angel Krasimirov in Sofia, and
Laura Noonan and Sujata Rao in London; Edited by Simon Robinson)