* Bank stress results expected Thursday
* Government expects to escape EU/IMF bailout
* Junior bondholders face "haircut"
* Slovenians see more pain to come
By Maja Zuvela
LJUBLJANA, Dec 9 Boris Jazbec's fortunes have
for years followed those of his country. As euro zone membership
boosted Slovenia's exports and papered over its Communist past,
he went into business and his investments prospered.
In 2010, he sold a chunk of prize real estate to buy into a
government offer to invest in state-owned banks.
"I thought: If this bank were to go bankrupt, it would be
the end of Slovenia as well," Jazbec told Reuters.
Now he is among thousands of junior bondholders who risk
losing millions as Slovenia races to recapitalise banks that are
drowning in some 7.9 billion euros ($10.8 billion) in bad loans,
threatening to drag Slovenia into the bailout queue.
Jazbec's exposure will become clearer this week - probably
on Thursday - when the results of an external audit will
determine how much the banks need.
Desperate to avoid following Greece, Ireland, Portugal and
Cyprus in seeking international aid, Prime Minister Alenka
Bratusek hopes to escape the tough terms and intensive
monitoring of a bailout by considering a "haircut" of junior
creditors to help the raise the cash.
Though the money involved is small change compared with the
more than 200 billion euros poured into Greece, the euro zone,
too, wants to avoid another call on the bloc's taxpayers. It
also fears yet more complaints that cost-cutting is ruining the
job prospects of Europe's youth.
Officials and analysts expect the banks will need an
injection of between 4 and 5 billion euros. Most analysts and
the government itself believe it can plug that gap by inflicting
losses on the small bondholders, using its own cash reserves
and, if necessary, tapping financial markets.
But there is little sign of relief among Slovenia's 2
million people, who in 1991 made an early exit from
disintegrating Yugoslavia to fast-track into the European Union
in 2004 and the euro zone in 2007.
That year, Slovenia's was the bloc's fastest growing
economy. Then the global crisis struck, exposing a country still
largely stuck in Communism, with the government controlling
around half the economy and state-owned banks doling out loans
to the politically well-connected.
"After independence I felt so proud of being Slovenian,"
said Jazbec, now 57. He started out at a state-run
food-packaging company, which he then bought, and subsequently
began buying, renovating and renting out office space. He sold
600 square metres (6,500 square feet) to buy the NLB bonds.
"Everything seemed so bright. But now I feel like we're in a
plane that has run out of gas and it's a matter of seconds
before it crashes," he said. "And all this just because of an
incestuous marriage between the state and banks."
Bondholders like Jazbec face losing an estimated 500 million
euros. They number in the thousands, but Rajko Stankovic, the
head of an association of local small shareholders, said the
bail-in could indirectly affect half a million people, or 1 in 4
NLB alone could need around 1.5 billion euros in fresh
capital, Slovenia's business daily Finance reported last week.
Stankovic said more than 900 people, mostly elderly, had
bought the bank's junior bonds, with a yield at the time of 6.25
percent compared to interest of 2-3 percent on regular savings.
"Banks should have been conservative institutions but they
extended loans with little collateral insurance and now we have
to carry the burden. That's not fair," said Stankovic,
mentioning the possibility of seeking protection in
Unlike in Cyprus, where the government bailed in big
depositors to find the cash demanded by the European Union and
International Monetary Fund as a condition of extending aid, the
savings of ordinary Slovenians will not be touched.
But they are already feeling the effects of government
spending cuts and a second recession since 2008. The retirement
age has gone up and public sector wages have gone down.
Unemployment stands at over 12 percent.
There are plans to reform the labour market to make hiring
and firing easier, and the government has slated 15 state firms
for sale, including the national airline, airport and telecom
"I've never been this worried since (Slovenia declared)
independence," said a 30-year-old teacher in Ljubljana who gave
her name as Katarina. "Now I see how they're cutting funds in
the healthcare system, they're even closing some wards in the
hospital because they are struggling financially."
Slovenia's plight grabbed headlines over the past two years
as protesters began taking to the streets, but their anger was
directed more at high-level corruption than economic woes.
Analysts see little chance of Athens-style unrest in this
sleepy Alpine country, squeezed between fellow EU members
Austria, Italy and ex-Yugoslav Croatia.
But Slovenians have been shocked by their turnaround in
fortunes and distrust central bank assurances that all
commercial banks will be open for normal business despite the
"Money is currently not safe in our banks," said Rok Mursic,
a 23-year-old salesman in the capital. "I was thinking of
opening an account in a foreign bank."
Deposits at NLB have already fallen nine percent in the
first nine months of this year.
Bratusek was in Milan on Monday, following recent trips to
France and Germany to shore up confidence and find possible
investors. She travels to Moscow on Tuesday. If Slovenia can
scrape through, it will be a victory for Bratusek after nine
months in office. But much damage has already been done.
"Even if the state manages to recapitalise the banks, their
reputation will be ruined for good," said Stankovic of the small
bondholders' association. "Citizens are losing confidence in the
banking sector and that's the capital punishment for the banks,
even if they stay afloat."