* Plan aims to stop fallout from bank run last month
* Audit indicates "serious felony": interior ministry
* Substantial parts of loan dossier missing: cenbank
* Bulgaria's credit default swaps at one-week high
* Prosecutors detain Corpbank executive in Black Sea town
(Adds lawyer comment)
By Tsvetelia Tsolova
SOFIA, July 11 Bulgaria is to allow its
fourth-biggest lender to collapse but could spend up to 2
billion levs ($1.39 billion) making sure customers do not lose
out, as the Balkan country battles to clean up its worst
financial scandal since the 1990s.
The central bank said it was removing Corporate Commercial
Bank's (Corpbank) banking licence and would hive off
its healthy activities into a separate bank, marking the first
banking collapse since a 1996-1997 domestic financial crisis.
The Bulgarian National Bank (BNB) is also alerting
prosecutors to the possibility that Corpbank's main shareholder
stole almost 206 million levs just before the central bank took
over its operations on June 20 after depositors withdrew about 1
The bank run was prompted by media reports accusing top
shareholder Tsvetan Vassilev of shady business deals. It spread
quickly to another lender, forcing Sofia to set up a protective
$2.3 billion credit line for its banks - a reminder that parts
of Europe's financial system are still far from secure despite
progress from the worst days of the global financial crisis.
Vassilev has denied the allegations against him.
"For several months now a massive, targeted and extremely
manipulative campaign has started against me, which spilled over
on everything associated with my name," he told Bulgarian news
agency BGNES, echoing comments he made previously to Reuters.
But the results of an audit into Corpbank showed "actions
incompatible with the law and good banking practices", BNB said.
Auditors were unable to value about 65 percent of Corpbank's
5.4-billion-lev loan portfolio because crucial documentation was
missing - "most likely destroyed in the days before the central
bank sent administrators there," the BNB added.
The results of the audit scotched earlier hopes of
recapitalising Corpbank with funds from existing shareholders.
"BARREL WITHOUT A BOTTOM"
All of Corpbank's good assets, and deposits not linked to
Vassilev, will be moved to a unit of the bank called Credit
Agricole - acquired by Corpbank from the French bank bearing the
same name a week before the BNB took action - and Bulgaria plans
to have this unit nationalised and re-opened on July 21.
"We cannot continue to fill a barrel without a bottom, as
the wise Bulgarian people say, and we cannot nationalise
Corporate Commercial Bank in its current state," the BNB said.
Though the main bank will collapse, Finance Minister Petar
Chobanov said the rescue could still cost between 1.5-2 billion
levs, potentially swelling the country's fiscal deficit this
year to more than 3 percent of gross domestic product (GDP)
against a planned target of 1.8 percent.
The cost is so high because the authorities have vowed to
repay all of the bank's depositors except those linked to
Vassilev. Corpbank's financial statements show that depositors
were owed almost 6 billion levs on March 31 - and since the bank
may not get repayment on much of its loan books it has a
substantial gap to fill.
The BNB has not provided any figures more recent than that
financial statement, nor said what proportion of the deposits
were linked to Vassilev. It has said that prosecutors will have
to determine whether his withdrawal of 206 million levs via a
third party amounted to theft.
Orlin Rusev, chairperson of the bank's management board, was
detained in Bulgaria's Black Sea resort of Sozopol on Friday in
relation to Vassilev's withdrawal of funds, prosecutors said. A
second executive at the bank's treasury department, Margarita
Petrova, was charged with embezzlement in relation to the same
withdrawals on Thursday.
A lawyer for Petrova dismissed the idea of people taking
money out of the bank in cash and said the BNB had made that
accusation to cover up its own bungling of the Corpbank crisis.
"As you can guess, 200 million levs were not taken out in
boxes, suitcases and trucks and the fact that the finance
minister, the central bank governor say this is simply shocking,
shocking." Tatiana Doncheva told BTV television. "This is
Rusev could not immediately be reached for comment.
Corpbank's spokeswoman has said the central bank has banned it
from making public statements without its approval.
THE "ONLY POSSIBLE" PLAN
The scandal has stoked memories of a 1996-97 crisis when 14
Bulgarian banks collapsed and comes as Europe's banks emerge
from a financial crisis that led to multiple bank meltdowns.
It has also raised the question of whether the institutions
tasked with ensuring a robust, accountable banking sector are up
to the job. Official documents published earlier this year
suggested Corpbank was in rude financial health, with less than
1 percent of its loan book classed as non-performing at the end
of 2013, against a sector average of 17 percent.
The BNB hopes its actions will reassure investors that
Corpbank's woes are isolated and pose no broader risk to the
financial stability of the EU's poorest member state.
Nonetheless, the cost of insuring against default on Bulgaria's
benchmark five-year bond rose to one-week highs on Friday.
It was not immediately clear what would happen to the
bondholders of Corpbank, in light of the results of the audit.
Prior to Friday's findings, the finance minister had told
Reuters that bondholders would be protected.
The central bank said an insolvency process would now be
launched. The privileged creditor will be the state.
"The central bank's plan looks like the only possible one,"
said Lachezar Bogdanov, economist with Sofia-based Industry
Watch think-tank. "If the central bank finds a swift solution
now and really gets the support of the state, Bulgaria can ...
issue a strong signal that it has working institutions."
($1 = 1.4375 Bulgarian Levs)
(Writing by Matthias Williams; additional reporting by Laura
Noonan in London and Angel Krasimirov in Sofia; editing by
Sophie Walker and Gareth Jones)