Bulgaria’s Corpbank Failure Fans Voter Anger Before Vote

In past elections, Valentina Kuzmanova was swayed by parties that promised jobs or social benefits in Bulgaria, the European Union’s poorest state. This time around, she just wants her money back.

The school teacher in Burgas, on the Black Sea, is one of the thousands of Bulgarians whose savings sit frozen in Corporate Commercial Bank AD, which failed in June because of a political feud and caused the government to collapse. With Oct. 5 early elections looming, she hopes the new authorities will save the lender, seized by the central bank in June, and avert a banking crisis so she can pay for her husband’s cancer care.

“It’s infuriating that I have the money, but there’s no way to get to it,” Kuzmanova said by phone. “Politicians can’t understand that I’m as much a European as people in Portugal or Cyprus, where they also had bank crises, but weren’t subjected to this level of humiliation.”

Bulgaria’s election, the second in two years for the Balkan nation, is turning on the fate of Corpbank, which Bulgarian President Rosen Plevneliev called a victim of “partisan games.” Former Premier Boyko Borissov’s Gerb party, which pledged to punish those responsible for Corpbank’s failure, including the central bank chief, would win the vote with 36 percent of voters, according to Gallup International.

Political Establishment

Corpbank, Bulgaria’s fourth-largest financial institution, is at the heart of the country’s political and corporate establishment. It handled the accounts of most ministries and state companies, including Bulgarian Energy Holding AD, the country’s biggest grouping of state-owned utilities.

The lender also has stakes in newspapers and two television stations, controlled by Delyan Peevski, its largest depositor, as well as in the biggest tobacco maker and telecommunications company.

Corpbank ran out of liquidity on June 20 and asked to be placed under central bank supervision amid reports of a dispute between billionaire Tsvetan Vassilev, the majority shareholder, and lawmaker Peevski, who sparked the seizure when he withdrew his funds.

The Bulgarian central bank didn’t keep its pledge to reopen the lender a month later, extending Corpbank’s supervision several times since then.

A final decision on its future will be made in November based on a clear estimate of the bank’s asset quality and capital adequacy, the central bank said on Sept. 16. Shareholders, advised by Vienna-based Epic Financial Consulting, are also invited to make investment proposals to rescue the bank.

Banking Crisis

Corpbank’s seizure pushed the country to the brink of its worst banking crisis since 1997, when the central bank was forced to peg the lev and form a currency board to stabilize the economic system after millions of Bulgarians lost their savings.

Corpbank started as a “small boutique bank that was fueled with government money and a lot of political decisions to make it a big bank,” Plevneliev said in a Sept. 26 interview in Bloomberg headquarters in New York. “Bulgarian politicians and regulators together with the European Commission will find a solution for that very special bank.”

Corpbank’s key shareholders asked three weeks ago to gain access to the books of the lender and draft a rescue plan, possibly with new outside investors.

Vassilev, who holds Corpbank shares through Bromak EOOD, is under indictment for misappropriation of funds because of the seizure.

Arrest Warrant

He was banned from traveling by a Serbian court on Sept. 17 amid mounting pressure from an international arrest warrant. His passport was seized and he has to show up at a police station in the capital Belgrade every day, while Serbian authorities are processing Bulgaria’s extradition request for him.

Vassilev denied wrongdoing and pledged “to do everything in his power to save the bank,” in a Sept. 23 statement on his personal website. He accused the central bank and government institutions of intentionally forcing the lender to go under.

The other big holders are Luxembourg-registered Bulgarian Acquisition Co., controlled by the State General Reserve Fund of Oman, and Russia’s VTB Group.

The European Banking Authority is investigating whether Bulgarian regulators breached EU deposit guarantee rules “according to which depositors should be compensated no later than 25 days after the unavailability of deposits,” the EBA said on Sept. 25.

Bank Guarantees

The European Commission, which has pressured Bulgaria to clean up institutional corruption since it joined the bloc in 2007, has started formal proceedings to force the country to improve its bank depositor guarantee program.

Deposits in Corpbank of as much as 100,000 euros ($126,050), guaranteed by EU law, amount to 3.7 billion lev ($2.4 billion), while the State Deposit Guarantee Fund has means to repay 2.1 billion lev, the central bank said on Aug. 11.

The gap of 1.6 billion lev can be covered by a government loan that needs to be approved by parliament, which will be formed after the elections, the bank said. The parliament rejected a proposal to widen the budget gap and rescue Corpbank before it was dissolved on Aug. 5.

Borissov, who is campaigning to return to the premiership he lost in 2013, said in a Sept. 26 interview that it’s “extremely important” to save the bank for economic stability.

Facebook Campaign

“Those who caused its failure should be found and punished,” he said in the interview in his Sofia office.

If elected, he said he would also ask parliament to replace central bank Governor Ivan Iskrov, whose six-year term expires next year.

Disgruntled savers, including Dessy Dimova, who is struggling to find money to send her two children to kindergarten, have united their efforts on Facebook, seeking support for their plight. Depositors include celebrities and former ministers who organize weekly protests in the Bulgarian cities of Sofia, Plovdiv, Varna and Burgas.

“Our aim is to keep the pressure on government institutions to convince them that it will be cheaper to save the bank, rather then let it slide into bankruptcy,” said Dimova in a phone interview in Sofia.

Should Borissov win, his success in dealing with Corpbank will depend on which other party will be strong enough in election results to warrant entering a coalition. Some political groups are adamant about letting the institution be liquidated, Georgi Ganev, the program director at the Center for Liberal Strategies in Sofia, said in a phone interview.

Rescue Dispute

“If the coalition partner is the Reformers’ Bloc, the bank won’t be rescued and only the guaranteed deposits will be repaid,” said Ganev. “If it is the Movement for Rights and Freedoms, then the bank will probably be rescued with billions of taxpayers’ lev.”

Meanwhile, Kuzmanova, the Burgas school teacher, is working two jobs just to pay the interest on her mortgage and is scraping to pay for her husband’s medical bills.

No government institution is giving her relief and after three months, the money she has in savings is not earning any interest.

“They have to observe my rights and give me back my deposit in 25 days,” said Kuzmanova. “I hope the European Commission pushes the next government to act.”

The Movement for Rights Freedoms, the third-biggest party in Bulgaria, has prepared a rescue plan that will be presented for approval in the next parliament, Yordan Tsonev, a member of the Movement’s leadership, said in an interview with Pressa newspaper today.

The plan envisages recapitalization of Corpbank by the government, estimated at about 3.5 billion lev, and separation of its profitable assets into a good bank.

Public support for Gerb fell to 34 percent from 36 percent a month ago, according to a survey by Sofia-based Alpha Research on Sept. 28-30. The Socialists trail with 19 percent.

(Updates with new survey in last paragraph.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE