Bulgaria Seizes Lender Part-Owned by VTB After Run on Bank

Bulgaria’s central bank seized a lender part-owned by Russia’s VTB Group after it ran out of funds and stopped all operations, spurring the biggest slump in the nation’s stock index in 16 months.

The management team of Corporate Commercial Bank AD, Bulgaria’s fourth-largest lender, was suspended and two administrators appointed to run operations for three months, central bank Governor Ivan Iskrov said at a news conference in Sofia today. The bank faced an “enormous run on funds” in the past week, he said. The seizure came before Bulgaria’s government starts investor meetings in Europe on June 23 for a possible bond sale.

The Sofix Index retreated 3.7 percent at the close in Sofia after Corporate Commercial informed the central bank that it has run out of cash and stopped all banking operations, including payments. VTB Group, Russia’s second-biggest lender, holds 9.9 percent of Corporate Commercial and “has expressed interest in discussing support” for the bank, Iskrov said.

“The bank is not bankrupt, the central bank acted promptly and decisively to avoid bankruptcy,” he said. “It’s closed. Our idea is to clean up the bank, if needed, to reduce its capital and to negotiate with potential buyers.”

Shareholder Rift

A VTB Group spokeswoman in Moscow declined to comment on the affiliate’s seizure today, saying it is a matter for its investment banking unit. A VTB Capital spokeswoman didn’t immediately respond to an e-mailed request.

“To protect the interests of its depositors and clients, CCB decided to seek the institutional support of the Bulgarian National Bank,” Corporate Commercial said on its website today.

The lender, which in the past decade handled the accounts of most ministries and state companies, including Bulgarian Energy Holding EAD, came under pressure after reports that a large depositor started pulling funds.

Businessman Delyan Peevski took his company accounts out of Corporate Commercial, including those of tobacco maker Bulgartabak AD, following a rift with the lender’s majority shareholder, Tsvetan Vassilev, Capital newspaper reported on June 18, citing unidentified people. Corporate Commercial and VTB jointly acquired Bulgartabak in 2011.

‘Serious Attack’

Vassilev owns Bromak EOOD, which holds a 50.7 percent stake in Corporate Commercial. Luxembourg-registered Bulgarian Acquisition Co., controlled by the State General Reserve Fund of Oman, has 30.35 percent, according to Iskrov. The central bank also revoked voting rights of shareholders owning more than 10 percent in the lender, he said.

“The bank, which was one of the most liquid lenders in the country, came under serious attack in the past week, which led to an enormous run on funds,” Iskrov said. “It is a big bank and it’s important to restore its operation back to normal.”

Corporate Commercial bought the Bulgarian unit of Credit Agricole SA on June 12 for an undisclosed price. In addition to the Bulgartabak acquisition, VTB and Corporate Commercial jointly bought out Viva Telecom, known as the Bulgarian Telecommunications Co. in 2012.

Shares Slide

Shares of Corporate Commercial were suspended today after slumping 9.8 percent yesterday. The Sofix Index retreated the most among more than 90 equity gauges monitored by Bloomberg globally. The government’s July 2017 euro-denominated bonds fell, sending the yield up four basis points to 1.49 percent at 7:47 p.m. in Sofia.

“The news was clearly behind the drop in Bulgarian stocks, especially as the market is relatively illiquid compared to peers,” Simon Quijano-Evans, the London-based head of emerging-markets research at Commerzbank AG, said by e-mail. “Given the systemic importance of the bank, the big question and risk is that political issues can lead to such a situation. That is probably the main question that investors will be asking themselves ahead of any bond issue.”

Bulgaria said this week it picked Citigroup Inc., HSBC Holdings Plc and JPMorgan Chase & Co. to manage its investor meetings.

Early Elections

Corporate Commercial, whose first-quarter profit rose 19 percent, accounted for 8.4 percent of capital in Bulgaria’s banking system, the lender said in a regulatory filing on May

27. The bank granted loans worth 1 billion lev ($695 million) to companies linked to Vassilev, Monitor newspaper reported on June 17, citing unidentified people.

The closure coincides with a June 17 announcement by Bulgarian President Rossen Plevneliev that leaders of ruling parties agreed to hold early elections some time from Sept. 28 to Oct. 12.

A poor showing of the ruling Socialists in the European Parliament elections on May 25 caused a rift between the Socialists and their junior coalition partner, the Movement for Rights and Freedoms. Senior politicians from the Movement had business links with Corporate Commercial, according to Capital.

“The Bulgarian government will support the Bulgarian National Bank’s efforts with all necessary actions and resources,” the government said in an e-mailed statement.

Before it's here, it's on the Bloomberg Terminal.