A year and a half after Bulgaria's fourth-largest bank collapse Oman's biggest
sovereign wealth fund, which owned a 30 percent stake in it, officially started legal action against the Bulgarian government. What is in store for the poorest EU member state?
By Milena Hristova
October 27, 2015
Corpbank collapse cost the Bulgarian government more than 3.6 billion levs ($2 billion) in compensation payouts. But a harder blow is ricocheting now through to the country's frail economy as
expensive trials by local and international investors get underway.
Oman's State General Reserve Fund (SGRF) filed an arbitration claim against Bulgaria over the collapse of Corporate Commercial Bank (Corpbank) on October 22, the online database of Washington-based International Centre for Settlement of Investment Disputes showed a week later.
Meanwhile costly lawsuits by large depositors and bondholders, among them several UK and US hedge funds and financial institutions, have got underway too.
Corpbank has not repaid the holders of a $150m senior unsecured bond that matured in August 2014, among them several US and UK hedge funds, even though Bulgaria’s central bank and its finance ministry reassured international investors they would get their money.
“We are very swiftly following on a number of different fronts and we are not going away,“ said one
London-based investment company manager who asked not to be named.
“We lost money on the deal and that's why we are fighting and we are irritated. We invested in good faith in a Bulgarian bank with the true effort to help the economy, help the country, help develop infrastructure, etc. We were shown the door.”
Large unsecured depositors are also putting on a united front. Many are not only furious, but also desperate.
Such as Theodor Mihaylov, who last year signed up his MS-sick granddaughter for expensive treatment at a US private clinic. His plan was to pay for it using all the money from his savings account at Corpbank.
“I opened the account at Corpbank in 2010 right after Alexandra was diagnosed with MS and went
blind. Meanwhile my son died, so I sold all his property and a small shop he ran and decided to use all the money for Alexandra.”
Their lives now are in limbo.
“I feel more desperate than ever,” says Theodor Mihaylov, a retired and respected economist.
“Corpbank was a case of a liquidity shortage, the run on the bank created the need for Bulgarian
authorities to step in. The crisis could have been contained. I guess there were failings in the way the bank was run, but the rescue of the lender was a totally realistic option. It would have taken an
additional liquidity of only 500 M levs to do that, “ he explained.
“There is nothing left for me to do but fight for my rights in court.”
Vera Akhundova, head of the association of individuals with business operations in Bulgaria, who had deposits at the bank, exceeding the guaranteed amount of up to 100,000 euros, is taking her case to Strasbourg and Luxembourg after simply giving up on Bulgarian justice.
Akhundova's association seeks to raise awareness of the risks to the economy in defiance of the widespread perception that larger depositors just sponged on the lucrative interest rates Corpbank offered.
“There is no independent judicial system, no independent central bank, no independent regulatory bodies. This is mafia. What the mafia did in Bulgaria is something that neither Angola nor South Africa dared do. As a result of Corpbank messy fallout Bulgaria's economy is in worse health than ten years ago.”
What those legal claims will mean for taxpayers and the long-term risks in terms of businesses forced to close and lost jobs?
“Impact assessments, conducted by the previous caretaker government and independent experts, have set the long term losses over Corpbank failure at between 12- 18 billion levs, mainly as a result of hundreds of businesses forced to close and thousands of jobs lost.
This is the biggest treason in Bulgaria's recent history.”