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Wednesday, May 10, 2000
For the third time in recent months, Japanese stakeholder Nomura Securities is floating a plan to cleanse the bank's balance sheet by tapping into Czech government resources. Once again, they're not having much luck.In the latest effort, Nomura has reportedly asked regulators to transfer IPB's bad debt to state-owned dumping ground Konsolidacni banka, according to several reports in the Czech media. Nomura officials reason it's only fair. IPB never received the pre-privatization state bailouts that its competitors, Ceska sporitelna and Komercni banka, did. A bailout would level the playing field, not to mention help Nomura with a string of current financial struggles. But state officials say it's too late to even think about this kind of help. IPB's shareholders are on their own. "The bank is in private hands, and the government no longer has any business interfering," said Finance Ministry spokesman Libor Vacek. Such a Konsolidacni bailout would have to be approved by the Finance Ministry, Czech National Bank regulators and the National Property Fund. Analysts say it would be tough to pull off. "Politically, it would be very difficult for officials to justify giving help of this magnitude," said Jan Scheisser, an analyst with Atlantik financni trhy. Officials won't name a figure, but Euro magazine estimates the debt Nomura is hoping to pass on to be as high as 40 billion Kc ($977 million). IPB would have to be on the verge of collapse -- which could have serious consequences for the Czech economy and the country's banking industry -- before the government would consider stepping in, Vacek said. Though finances are troubled at IPB, they're far from that point, observers say. That doesn't seem to stop the bank from trying. In December, IPB made a last-minute, unsolicited bid to buy the country's largest savings bank, Ceska sporitelna, from the government. The bid came after the government had already decided to negotiate exclusively with Austria's Erste Bank. Bank officials say the move was an effort to create a strong Czech bank as the industry consolidates around the globe. But critics called it a last-ditch scheme to solve IPB's bad loan problem by combining with a soon-to-be-privatized bank. This would not only dilute IPB's bad loan ratio, it would increase IPB's chances of hopping a ride on a state bailout. Then, last month, Nomura European chief Randall Dillard tried a similar but different door back into the state coffers. He proposed a merger between IPB and state-owned corporate lender Komercni banka. Komercni, the largest bank in the Czech Republic, is expected to be privatized by the end of 2000. Nomura's hope was that the state would then bail out the combined colossus before it proceeded to sell it to the highest bidder. Though you can't blame Nomura for trying, continuing to knock on the state's door verges on the audacious, observers say. Nomura not only agreed to take on the problem debt it is now trying to hand off, but it contributed to the situation. The Japanese investment bank paid 3 billion Kc for a controlling interest in IPB in 1998. It was no secret that IPB, like all of the Czech-owned banks, struggled with a mound of questionable loans. The bank had lent extensively to some of Czech industry's worst cases, including engineering giant Skoda Plzen, struggling steelmaker Vitkovice and bankrupt Chemapol Group. Since buying in, Nomura has done some cleansing of IPB's balance sheet on its own, transferring a chunk of the bad loans to offshore banks. But at the same time, the company pursued an aggressive policy to gain new retail banking customers. This was at a time when the Czech economy was faltering. The result? The mound of bad debt actually grew. Experts estimate the proportion of these classified loans has grown from 20 percent of IPB's total portfolio to close to 30 percent since Nomura came on board. "The balance sheet certainly didn't get better under their watch," Scheisser said. A rolling stone Nomura, an investment bank, never promised to stick with IPB for the long haul. It has been looking to sell most of its 46 percent stake since last fall, said bank spokeswoman Barbora Tacheci, and hopes to wrap up negotiations in five months. But in the meantime, Nomura is under the gun to find investors of another kind: strategic partners willing to inject new capital into the bank in exchange for newly created equity. The bank needs the capital because it is under investigation by government regulators who say that its capital-to-bad-debt ratio might be at dangerous levels. An injection of capital -- as much as 13.4 billion Kc might be necessary -- would bring the ratio back up to acceptable levels. But IPB's efforts to lure such strategic investors are being blocked by minority shareholders, who have filed a lawsuit. If regulators decide the levels are inadequate, IPB can't attract strategic investors, and Nomura doesn't ante up, that could mean the bank might be put under forced administration. Jiri Stanik, an analyst at Raiffeisen Investment and Finance, said the proposed Konsolidacni debt transfer could be a condition of a potential strategic investor. This might be one thing that would make the state give the proposed bailout a bit of thought. But it would also help make the stake Nomura is trying to sell more attractive, and possibly line Nomura's pockets a little deeper, if it's able to sell its 46 percent stake. "Basically, they want to exit the bank without being hit by the problems of the bank," Stanik said. "You can't blame them for trying." Lisa Gonderinger's e-mail address is lgonderinger@praguepost.cz
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