One worker at Bulgaria’s Corporate Commercial Bank knew panic was setting in when she spotted colleagues among the anxious depositors lined up to withdraw cash from the troubled bank.
The alarm came in part because the week before, on June 13, with television news crews filming, Bulgarian state prosecutors had raided a building in Sofia that housed Corpbank offices.
Though both the prosecutors and the bank said the raid did not target Corpbank – the building housed other companies as well – customers soon began to withdraw their savings.
Within days, the Central Bank had seized control of the bank, the fourth-biggest lender in Bulgaria, and suspended its operations for three months.
The dramatic raid and bank run were reminders that despite progress from the worst days of the euro crisis, parts of Europe’s financial system are still far from secure.
The run quickly spread to another bank and saw Sofia announce a protective $2.3 billion credit line. It also stoked uncomfortable memories of a 1996-1997 crisis in Bulgaria, when 14 banks collapsed, and followed much more recent bank meltdowns in Ireland, Greece, and Cyprus.
Corpbank had been adjudged safe and secure. At the end of the 2013 financial year, its books were audited by KMPG, who found less than one per cent of its loans were non-performing, against an average of 17 per cent for Bulgarian banks.
And just days before the run on Corpbank, the International Monetary Fund had praised the country’s financial sector as “stable and liquid”. A senior IMF official has since said the problems at the two Bulgarian banks did not reflect any underlying problems in the system, which remains well capitalised and liquid.
The country’s central bank initially blamed the bank run on media reports about Corpbank’s main owner and leaked news that a central bank deputy governor was under investigation.
Central Bank Governor Ivan Iskrov called the leak a deliberate “attack” on the bank.
Others suggested alternative reasons. Behind closed doors some government officials blamed the run on a clash between Corpbank’s main owner Tsvetan Vassilev and his political rivals, without saying who they were. Prime Minister Plamen Oresharski publicly blamed a “corporate clash” for the run on Corpbank, without going into specifics.
When the run spread to First Investment Bank, a bigger lender, the government pointed the finger at unnamed people for launching what they called a criminal attack on the country’s financial system.
Perpetrators were using phone text messages and the internet to spread malicious rumours about Bulgarian banks, the central bank, and finance ministry said.
Much is still unclear. Who was behind the internet rumours and text messages? Why did the government not investigate sooner? How exactly was the feud connected to the run on Corpbank?
What is true is that there is an investigation into malpractice at Corpbank. But what is the real situation? We are waiting to see what the external auditors will say
“The security authorities, the Interior Ministry, are investigating. They have some suspicions and there are some people who have been accused (of the attack on the banks),” Finance Minister Petar Chobanov said.
“What is true is that there is an investigation into malpractice at Corpbank. But what is the real situation? We are waiting to see what the external auditors will say.”
In the days before the Corpbank run, newspaper stories alleged misconduct by Vassilev, and his businesses. Some papers alleged Corpbank had made improper loans to certain companies linked to Vassilev, though he said those claims were lies.
“The run on the bank was obviously a perfectly organised plot against me and Corpbank,” he wrote in an e-mail to Reuters.
As rumours swirled, depositors started withdrawing what they could. “For five days we managed to withstand the withdrawals that were like an avalanche,” said the worker at Corpbank who had seen colleagues withdrawing money.
On June 17, the central bank issued a statement saying all Bulgarian banks, including Corpbank, had high liquidity, were adequately capitalised and were functioning normally.
The next day, an anonymous letter was leaked to the media by someone purporting to be a central bank employee.
The letter alleged that Tsvetan Gounev, a central bank deputy governor in charge of banking supervision, was under investigation by state prosecutors for abuse of office.
The letter, parts of which were published on news websites and broadcast on national radio, alleged that the probe into Gounev was linked to dealings with an un-named bank that had been the subject of media attention. Local media speculated the bank in question was Corpbank.
Both the central bank and Gounev’s lawyer told Reuters that Gounev would not comment on the investigation into him.
Within hours of the anonymous letter, the central bank confirmed that prosecutors were investigating Gounev, but did not go into specifics. They said Gounev had taken a voluntary leave of absence.
The chief prosecutor told reporters on June 18 that there was a pre-trial investigation into Gounev for not fulfilling his duties as a banking supervisor. Central Bank governor Iskrov said the leaked letter was unlikely to have come from a central bank employee.
State prosecutors said the raid had been prompted by a tip-off by Protest Network, a Bulgarian anti-corruption activist group, and connected the raid with their investigation into the deputy governor.
Moustachioed mogul Vassilev, Corpbank’s main owner, is one of the country’s most prominent businessmen. Last year his donations to a monastery prompted the institution to add his portrait to a mural of religious figures.
Shared on Facebook, the pictures drew scorn from some Bulgarians, who complained that a wealthy businessman should not be paid such reverence. The painting was later removed.
Vassilev owns just over 50 per cent of Corpbank. The other main shareholders are Oman’s sovereign wealth fund, which has around 30 per cent, and Russian bank VTB, with just under 10 per cent. The bank sponsors a Bulgarian soccer club, basket-ball team and several sports federations.